SlideShare a Scribd company logo
1 of 72
Download to read offline
A/Prof Jeffrey Funk
Division of Engineering and Technology Management
National University of Singapore
Business Model
 Value proposition: what to offer and how to
differentiate
 Customer selection: whom to serve and not
serve
 Scope of activities: what activities to carry out
and what relationships to have
 Value capture: dominant sources of revenue
 Strategic control: how to sustain profitability
(e.g., how to control architecture and standards)
Scope of Activities
 Constantly changing, creating opportunities for new firms
 Mostly changing towards vertical disintegration, thus
enabling more firms to participate in an industry
 Examples  Examples
 Automobiles
 Apparel
 Internet
 Construction
 Movie Production
 Agriculture?
 Personal computers
 Semiconductors
 Broadcasting
 Music
 Mobile Phones
 Exceptions
 Hospitals?
 Oil Companies?
Scope of Activities (2)
 Extreme example: There are millions of firms in the vertically
disintegrated Internet!
 Facebook, YouTube, newspapers (e.g. blogs), and others have outsourced
content production to users
 Current big growth area is mobile phone based software, e-commerce, and
consumer Internet firms
 Rapid growth in users, apps, and firms - think Xiaomi, Uber, Snapchat,
Flipkart, Spotify, WeWork, and many more
 Many members of Billion Dollar Startup Club benefited from
vertical disintegration
 Many more will benefit as wearable computing and IoT
experience vertical disintegration
 Number of software and content firms will be much larger than hardware
firms
 Recent Startups
 with valuations over $1 Billion
 and are still private (no IPO yet)
 sometimes called Unicorns
 97 firms as of June 2015
 With 19 other firms in list, that exited in recent years due to
IPOs, acquisitions or decreasing value (total of 116 firms)
 High valuations mean investors believe these firms are
offering something valuable, unique, and hard to copy
 Some of them will
 lead to creative destruction
 have $100 Billion plus market capitalizations in the future, like
the strongest hi-tech startups: Apple, Google, Amazon, and
Microsoft
Billion Dollar Startup Club
Many of these firms have put the puzzle
together differently
Created new blocks,
with new interfaces
Some represent
more detailed
modules
Some have
completely different
boundaries
Outline
 Definitions/Review
 Scope of activities
 Value configuration: chains, shops, networks
 Examples
 Computers
 Video Consoles/Games
 Music
 Mobile Phones
 Conclusions
Scope of Activities
 What do you make or do, versus what do you buy or
outsource?
 Partly a cost decision, partly a strategic decision
 Want to reduce costs
 But also a strategic issue
 want to develop capabilities
 don’t want to become dependent on a single firm for a key
component
 Thus, make versus buy decisions determine the areas in
which a firm intends to compete
Example of Strategic Issue
 If an automobile supplier stops making engines, can it
begin making them again?
 If a leading automobile firm begins selling engines to
other firms,
 will this help its competitors and thus hurt its auto
sales?
 or will this enable greater development spending?
 How about the country level?
 Similar things in other industries, particularly
materials industries where performance depends on
close integration of everything
Other Strategic Issues
 Part of the make or buy decision involves whether you
can buy or outsource something –
 this depends on the degree to which independent suppliers
of components and services (i.e., vertical disintegration)
have emerged
 This is why one must consider the levels of vertical
(dis) integration in the industry using value chains,
etc when considering the scope of activities
 Increasing amounts of vertical disintegration may provide
firms with new opportunities for outsourcing
 You must be aware of how industries are evolving when you
determine your scope of activities
Vertical (Dis)integration
 Represents extent to which work is shared among
different organizations
 Changes in vertical (dis)integration can come from
technological, institutional, or social changes
 In particular, reductions in transaction cost lower
 costs of having work done by multiple firms/agents
 importance of integrative capabilities
 and thus facilitate the emergence of vertical disintegration
(and entrepreneurial opportunities)
Reducing “Transaction” Costs
 Emergence of standards often leads to reductions in
transaction costs
 Political and regulatory changes can also lead to lower
transaction costs
 Whether these reductions in transaction costs also
lead to emergence of vertical disintegration also
depends on whether
 standards are open?
 different capabilities required?
 economies of scale or network effects exist?
Bottom-Up vs. Top-Down
 Much of vertical disintegration has emerged from bottom-up
 For example, firms must design their electronic systems
around available microprocessors, operating systems, and
other ICs and software
 This is because specific ICs and OSs have become “standards”
with large network effects (session 5)
 As all mechanical products and systems become connected
e.g., wearable computing and Internet of Things), vertical
disintegration will occur and it will probably occur through
bottom-up and not top-down
 This is very different from how systems engineering and systems
architecture modules are taught
 Suppliers of ICs and software will continue their efforts to make
their products standards and venture capitalists will reward
promising firms
As an Aside
 How is Horizontal (Dis)integration different
from Vertical (Dis)integration?
 Most profitable firms are usually more
vertically integrated than other firms
Horizontal (Dis)integration
 Scope of products that a firm offers
 Similar to narrow or broad market scope that
were discussed in first Week
 Apple offers many kinds of electronic
products
 Desktop computers, laptop computers
 MP3 players, Phones
 Tablet computers
 Televisions
As an Aside
 Most profitable firms are usually more
vertically integrated than other firms
 Thus, although these slides emphasize vertical
disintegration, this is only because new
entrants pursue this strategy due to lower
barriers to entry
 Examples of profitable vertically integrated
firms
 IBM
 Intel
 Big chemical and oil firms
 Samsung
Outline
 Definitions/Review
 Scope of activities
 Value configuration: chains, shops, networks
 Examples
 Computers
 Video Consoles/Games
 Music
 Mobile Phones
 Conclusions
Firm infrastructure activities
Human resource management
Research, development and design
Purchasing,
inventory
holding,
materials
handling
Manufac-
turing
Outbound
logistics
Market-
ing &
Sales
Dealer
support
and
customer
service
Support
activities
Primary
activities
Purchasing
Vendor
relations
Inbound
logistics
Inventory
holding
Materials
handling
Raw
materials
Capacity
Location
Parts
production
Assembly
Prices
Advertising
Promotion
Sales force
Packaging
Brand
Sales
Channels
Inventory
Warehousing
Transport
Warranty
Speed
Captive/
independent
Value chains
Issues
Value Chains for Individual Firms Exist within
Larger Value Chains
Supplier Firm Channel Buyer
Value Value Value Value
Chains Chain Chains Chains
The Degree to which One Firm does all these activities is Called
“Scope of Activities” or Vertical Integration (the opposite is vertical
disintegration)
Some people use the term industry architecture to describe the level
of vertical integration
Supplier Firm Channel
Buyer
Value Value Value Value
Chains Chain Chains Chains
Value Shops
 The primary activity is finding out what the
customer wants and how to fulfill it
 Examples
 Health care
 Travel agencies
 Real estate companies
 Financial institutions
 Education
 Technology, in particular the Internet is changing
the way value shops can be managed
Value Networks
 Firms operate as brokers between buyers and sellers in a
value network
 Network effects play a larger role in value networks than
in value chains or value shops
 Examples
 Before the Internet: banks, stock brokers, newspaper
classified ads, video games
 Change to value network or increased importance of value
network by the Internet: employment sites, E-Bay, real-
estate sites, Amazon.com
 Many successful Internet sites are value networks
Scope of Activities
 Firms operating in value shops or value networks
must also think about their scope of activities
 Vertical disintegration has emerged in many of value
shops and value networks at a global level (Internet is
a big facilitator). Examples:
 U.S. hospitals outsource medical decisions to Indian doctors
by using the Internet
 Universities outsource courses to contract professors that
teach in class or over the Internet
 This vertical disintegration increases the number of
choices for firms with respect to scope of activities
Impact of Vertical Disintegration on Other
Aspects of a Business Model (1)
 Vertical disintegration complicates the choice of
value capture, customer selection, value
proposition by increasing the number of firms
involved with delivering value to the final
customer
 Firms must consider impact of their choices
(methods of value capture, customer selection,
value proposition) on their suppliers, customers,
and other firms (e.g., collaborators) that supply
complementary products
Impact of Vertical Disintegration on Other
Aspects of a Business Model (2)
 If suppliers of complementary products do not
focus on same customers or value propositions, or
implement complementary methods of value
capture, then your business may not grow
 If your method of value capture prevents
 suppliers of complementary products from making
money, complementary products will not emerge
 retailers or distributors from making money, they will
not distribute your products
 Many of the examples below involve these issues
Outline
 Definitions/Review
 Scope of activities
 Value configuration: chains, shops, networks
 Examples
 Computers
 Video Consoles/Games
 Music
 Mobile Phones
 Conclusions
Computers
 Many changes in computer sector over last 60 years –
including changes in leading firms
 In discontinuities (relevant to value propositions):
mainframe, mini, personal, portable
 In lead customers
 from accounting departments to
 scientists and engineers to
 Small firms, professionals, and home professionals
 mobile professionals
 In methods of value capture
 from leasing and/or selling them with a sales force to
 selling them through a retail outlet to
 selling them online to
 licensing software
Other Changes (1)
 Emergence of relatively open interface standards between
 computers and peripherals
 computers and remote services
 computers, LAN, and Internet
 operating system and application software
 in some cases operating systems and microprocessor
 Rising development cost for OS, application software and
microprocessors
 6 Billion USD to develop Windows Vista, the 2007 Windows
operating system
 Between 100 Million and 1 Billion USD to develop high-end
microprocessor
 Emergence of these standards (and high development
costs) supported emergence of vertical disintegration
Other Changes (2)
 Political/regulatory decisions
 US government forced IBM to unbundle hardware and
software in late 1960s
 But didn’t force Microsoft to unbundle operating system
and application software in 1990s, as European Union did
 U.S. government supported the development of open
standards and commercialization of the Internet
 Universities defined open standards for the Internet
 These decisions also enabled vertical disintegration to
emerge
Emergence of Vertical Disintegration
 Enabled smaller scope of activities, lower development
costs and thus reduced barriers to entry
 And thus impacted on business model
 In combination with other changes (e.g., changes in
value capture, changes in lead customers, dimensions
of performance), led to dramatic changes in the
leading firms
Source: Christensen & Raynor, 2003
Vertical Disintegration
Emergence of Standards Drove:
The Computer Industry: 1980
Top 10 Public Companies in US Computer Industry
(Area reflects market capitalization value in constant US $)
Services S
P
Systems Integration E
R
R
Applications Layer Y D CVC
Middleware Layer U H E
Operating Systems IBM N P C
S
Hardware Y XRC
S
AMP
Components
TI Intel
XRC: Xerox; Source: Source: Carliss Baldwin and Kim Clark
The Computer Industry: 1995
Top 10 Public Companies in US Computer Industry
(Area reflects market value in constant US $)
Services
First Data
Systems Integration EDS
Oracle
I CA
Applications Layer B MSFT
Middleware LayerM
Operating Systems
Hardware: Printers HP
Hardware: Servers IBM
Hardware: Routers Cisco
Components Intel
Micron
S
P
E
R
R
Y D CVC
U H E
IBM N P C
S
Y XRC
S
AMP
TI Intel
Abbreviations: CA (Computer associates); EDS (Electronic Data Systems);
MSFT (Microsoft); Source: Carliss Baldwin and Kim Clark
1980
The Computer Industry: 2004
Top 10 Public Companies in US Computer Industry
(Area reflects market value in constant US $)
Services First Data
ADP
Systems Integration
Oracle
Applications Layer IBM
Middleware Layer MSFT
Operating Systems
Hardware: Printers HP
Hardware: PCs Dell
Hardware: Servers IBM
Hardware: Routers Cisco
Components Intel TI
Abbreviations: ADP (Automatic Data Processing); MSFT (Microsoft);
Source: Carliss Baldwin and Kim Clark
1995
Market Capitalization in 2007
 Microsoft - $264B
 Google - $210B New to list
 Cisco - $189B
 Apple Inc. - $162B New to list
 IBM - $159B
 Intel - $155B
 HP - $112.57B
 Dell - $45.09B
Source: http://en.wikipedia.org/wiki/List_of_information_
technology_companies_by_market_capitalization
Rank Company Market Capitalization Type of Business
1 Apple $742 Billion Hardware
3 Google $375 Billion Search
4 Microsoft $360 Billion Software
21 Facebook $211 Billion Content
26 Oracle $192 Billion Software
30 Amazon $177 Billion Online Sales
37 Intel $171 Billion Integrated Circuits
39 Samsung $162 Billion Electronics
40 IBM $158 Billion Hardware
41 Tencent $156 Billion Internet content
43 Comcast $153 Billion Cable TV, content
51 Cisco $150 Billion Hardware
53 TMSC $122 Billion Integrated Circuits
57 Qualcomm $117 Billion Integrated Circuits
98 SAP $92 Billion Software
Top IT Firms Among Top 100 - Market Capitalization (17 Feb 2015)
http://www.corpo
rateinformation.c
om/Top-
100.aspx?topcase
=b%3b+http%3a
%2f%2fwww.lib.
uwo.ca%2fnews
%2fbusiness%2f
2011%2f04%2f0
8%2ftopglobal10
0companiesbyma
rketcapitalization.
html
http://www.economist.com/news/business/21647612-once-dominant-software-giant-determined-prove-life-begins-again-40-openin
New Additions to Top 10 Firms Benefited from Emergence of
Vertical Disintegration
Year Firm Vertically disintegrated layer
1995 First Data, EDS Remote services
Oracle, Comp. Assoc. Application software
Cisco Routers, emergence of Internet
Microsoft Operating systems
2004 ADP Remote services
Dell Personal computers
2007/
2010
Google Internet and search engines
Apple Internet: computers and content
SAP AG Application software
Amazon.com, Tencent Internet and Internet content
Comcast Cable TV, content
 Cloud Computing: Dropbox, Pure Storage (also hardware), Nutanix,
Jasper Technologies (IoT), AppDynamics, Box
 Big Data: Palantir, InsideSales.com, Deem, New Relic
 Open Source: Cloudera, Automatic, Hortonworks
 Online Ads: InMobi, AppNexus, IronSource
 Security: Tanium, Good Technology, Lookout
 Database: MongoDB, MarkLogic
 Integration Platforms: MuleSoft, SimpliVity
 Tools (for individual and enterprise): Zenefits, DocuSign, Slack,
Sprinklr, Actifo, Qualtrics, Shopify, Cloud Flare, Evernote
Software Suppliers in Billion Dollar Startup Club
Benefit from Vertical Disintegration
Why Big Changes in Leading Firms
 Because change creates opportunities for new firms
 Changes in Technology (value propositions, discontinuities):
mainframe, mini, PC, portable, Internet, smart phone, tablet
 Changes in lead customers for hardware
 from accounting departments to
 scientists and engineers to mobile professionals
 Changes in methods of value capture
 from leasing and/or selling them with a sales force to
 selling them through a retail outlet to
 licensing software
 Changes in levels of vertical disintegration
 Challenged incumbents and enabled many firms to co-exist
Why are Some Firms Most Profitable
(Method of Strategic Control)
 Controlled key interfaces (standards) at some point in time
 IBM: interfaces in mainframe computer
 Microsoft and Intel: operating system and microprocessor in PC
 Cisco: IOS in routers
 Very innovative
 Apple in i-pod, i-phone, and i-pad
 Benefited from Network Effects, Switching Costs, Lock-in
 IBM in mainframe; Microsoft and Intel in PC (Wintel)
 Cisco: in routers; Google in search
 Oracle and SAP: application software for big clients
 Apple in i-pod, i-phone, and i-pad
 Next week, we talk about Method of Strategic Control
Outline
 Definitions/Review
 Scope of activities
 Value configuration: chains, shops, networks
 Examples
 Computers
 Video Consoles/Games
 Music
 Mobile Phones
 Conclusions
Outline
 Definitions/Review
 Scope of activities
 Value configuration: chains, shops, networks
 Examples
 Computers
 Video Consoles/Games
 Mobile Phones
 Mobile phone apps, e-commerce, and software
 Implications for IoT and Wearable Computing
Video Consoles and Games
 How are video consoles similar to PCs?
 Vertical disintegration has also emerged in video
consoles
 But
 Less vertical disintegration in video consoles than in PCs
 And manufacturers make more money than do software
(game) providers
 Why these differences?
Consumers
Developers
Tools and
Middleware
Providers
Console Maker
Publishers
Content
Providers
Value Network for Video Consoles and Games
Games
Consoles
& Games
Royalties
Content
Financing
Games
Games
Business Model for Video Game Consoles
 Value proposition
 Provide graphic intensive game consoles
 Growing niches: PC, Internet and mobile games
 Customer selection
 Mostly high-end graphic-loving users
 Growing niches: PC, Internet and mobile games
 Scope of activities
 Vertically disintegrated: different firms provide hardware and
software
 Value capture
 Console manufacturers take most of revenues including portion
of independently sold game software revenues
 How do they do this?
Source: Pong, Chapter 6 in Invisible Engines
Method of Value Capture for Video Game Firms
 Video game console manufacturers
 Include authentication chips in the games in order to prevent unauthorized
games from being played
 Take a portion of game revenues (20% ?, $3-$9 per game) on their games
 Discount sales of consoles by >$100
 Game publishers and developers
 Revenues from sales of games
 Divided up between publishers, developers, and content providers (e.g.,
basketball player’s image)
 Tool providers
 Sale of tools
 But must pay a licensing fee ($12,000) to console suppliers for technical
information
Source: Pong, Chapter 6 in Invisible Engines
Why Differences?
Why are Manufacturers and not OS and IC
suppliers dominant in Video Games?
Why isn’t there as much vertical
disintegration in video games as in PCs?
Why are Manufacturers and not OS and IC
suppliers dominant in Video Games?
 Vertically disintegrated layers of operating systems and
microprocessors have not appeared in video consoles
 Graphic performance of games depends on integral design of
operating systems, processors, and other ICs (but changing)
 Compatibility between users (which comes from standard OSs)
is not as important as with PCs (but changing)
 Pricing strategy is also different – discount consoles and charge
software providers a royalty fee (razor blade strategy), partly
because users buy a large variety of software
 Games played on PCs (including online games) undergo
a different set of competitive dynamics than those on
video consoles (but becoming more important)
 What do you think would happen if a console supplier
tried to introduce a business model like that found in the
PC industry?
 Open system?
 No royalties?
 Instead pay for software that is loaded onto computer?
Outline
 Definitions/Review
 Scope of activities
 Value configuration: chains, shops, networks
 Examples
 Computers
 Video Consoles/Games
 Music
 Mobile Phones
 Conclusions
Old Business Model for Music-Related Firms (1)
 Value proposition
 For many years music companies bundled songs
from top-name artists into record, tape, CD. Now
they try to sell singles over Internet
 Manufacturers focused on quality, design, and price
but sales of special audio players are dropping
 Customer selection
 mostly young people
Old Business Model for Music-Related Firms (2)
 Scope of activities
 Vertically disintegration between music and players
 Vertical integration within players and within music
 Value capture
 Music companies take large percentage of music sales
through long-term contracts with artists
 Hardware manufacturers use production business
model but special purpose players are disappearing
Apple Changed Scope of Activities & Value Capture for
Music: It sells both players and music and subsidizes music
Music
Companies
Music
Companies
Consumers
Consumers
Old Value Chain
New Value Chain
Design, Make
Music Players
& Components
Retail
RetailRetail
Components
Design
andRetail
Apple
Players Music
Artists
Composers
But Apple Purchased Most of the Components
 Storage: Intel micro hard disk / memory chips
 Battery: Sony Lithium polymer technology
 Connectivity: Firewire standard
 Software: ARM architecture
 Microprocessor: Samsung processor
 User Interface : Pixo, a cell phone software developer
Source: Group 5 in past Class
Apple Still Purchases Most of the Components
Apple’s Scope of Activities
 Represents a completely different level of vertical
disintegration, i.e., scope of activities, from previous
solutions
 More investments in retail outlets than in assembly or
manufacture and development of components
 Thus, return on investment depends more on level of
investment in retail outlets than in manufacturing
 Other firms are replicating this business model
 Consumer electronics firms enter retail: Nokia, Sony, and
others in retail outlets
 Web firms design consumer electronics but outsource
manufacturing: Amazon Amazon Kindle, B&N with Nook;
Google with Google TV
Apple and Other Firms
have Created Retail Outlets
 Creating retail outlets is one way of enhancing brand
image
 Many phone manufacturers and other suppliers of
consumer electronics (Sony) have created retail outlets
 These suppliers now compete with traditional retail
outlets (Best Denki, Harvey Norman, Courts) that also
sell products from these suppliers
 Even most clothing manufacturers emphasize retail
more than manufacturing
 Levi was the king of clothing in the 1970s and slow to create
retail outlets
Apple has also succeeded in Content
 Developed successful eco-systems of content providers
for i-Pod, iPhone
 Music for i-Pod
 Apps for i-Phones
 Can Apple create new eco-systems of content providers
for
 Tablet computers?
 Smart watches?
 Apple TV?
 Apple Pay?
 These skills may be as important as those for design (and
certainly more important than manufacturing)
Outline
 Definitions/Review
 Scope of activities
 Value configuration: chains, shops, networks
 Examples
 Computers
 Video Consoles/Games
 Music
 Mobile Phones
 Conclusions
Batteries
Vertical Disintegration Existed at the Start of
Mobile Phone Services in 1980s
Phone
Manufacturers
Displays
Interface defined by air-interface
standards such as GSM and CDMA
Chips
Software
Service
Providers
Base Stations
Switching Equipment
Network Software
Retail Customer
Value Chains for Phones
 Have become highly vertically disintegrated
 Most variable costs are materials (see next slide)
 Also encourages entry by new phone manufacturers
(many in China, e.g., Xiaomi)
 Development costs are also low
 First iPhone - $150 million
 More recent phones - $15 million
 Development costs for integrated circuits are much
higher
 Smart phone processors - $1 billion
 Simpler chips - $20 – 100 million
Gizlogy, 2015. http://gizlogy.com/apple-iphone-generations-time-line/ McKinsey, 2013. file:///C:/Users/etmfjl/Downloads/4_ChipDesign.pdf
Vance A 2010. For Chip Makers, the Next Battle is in Smartphones, February 21, 2010. Yota, 2015. http://rostec.ru/en/news/4514817
Mobile Phone Manufacturers are Highly Vertically
Disintegrated (Apple designs processors, but
outsources all manufacturing)
Google’s Latest Strategy
Google’s Project
Ara
Google defines the
exoskeleton
(including the APIs)
and users create their
own phones
Users can mix and
match modules, and
replace them over
time
Batteries
The Big Battle is to Connect Content with Users
Phone
Manufacturers
Displays
Interface defined by air-interface
standards such as GSM and CDMA
Chips
Software
Service
Providers
Base Stations
Switching Equipment
Network Software
Retail Customer
Content
Portals or
Search
Engines
New Eco-Systems Emerged
Around Apple’s iOS and Android
 Mostly in the form of apps
 Thousands of apps are available
 Why are apps better than accessing service provider’s
menu or searching with Google?
 The better value proposition of Apps caused
competition to revolve around them, including
network effects
 How strong are the network effects with Apps?
 And who is winning?
Google Play Now Offers More Apps than Does iOS
And it Has More Downloads
 Android’s Google Play Store generated nearly 60%
more app downloads than Apple’s iOS App Store
(60% more)
 And this doesn’t include sales from Amazon and
Samsung stores
 Most downloads
 Games: Candy Crush Saga
 Non-games: Facebook messenger. Facebook app, Whats
App, Instagram, Skype
 But revenues are a different story
http://www.theguardian.com/technology/2015/jan/28/android-ios-app-downloads-revenues-app-annie-google-play-app-store
More App Revenues for Apple
 App Store generated
more than 70% more
revenues than Google
Play
 Apple paid $10 Billion to
iOS developers in 2014,
suggesting Google Play
paid $3 Billion to
developers
 Payouts to developers
represent 70% of App
Revenues for Apple
http://www.theguardian.com/technology/2015/jan/28/andr
oid-ios-app-downloads-revenues-app-annie-google-play-
app-store
The UpShot
 Very vertically disintegrated system in mobile phone
industry
 But Apple is generating huge profits through
managing eco-system
 How much from design?
 How much from apps and network effects from apps?
 Other phone suppliers have also created large eco-
systems
 Xiaomi uses light asset model, even lighter than Apple
 No ownership of retail stores, sells most phones online,
making them cheaper than unsubsidized phones obtained
through service providers
 Trying to export model to other countries
Conclusions (1)
 Most industries are highly vertically disintegrated
 This enables many firms to co-exist
 Reasons for this vertical disintegration include
 More open standards
 More electronics that facilitate standards and open standards
 High development cost for electronics and software
 Emergence of open standards and other changes (such as
political and regulatory changes)
 can reduce transaction costs and
 thus enable vertical disintegration
 A new scope of activities
 represents a new business model and
 it may require changes to other elements of the business model
Conclusions (2)
 Vertical disintegration, which enables a different scope
of activities, provides challenges for incumbents
 reduces barriers to entry, and thus facilitates new entry
 makes new methods of value capture possible
 Vertical disintegration will likely emerge in new
industries
 Internet of Things
 Wearable Computing
 Firms should expect this vertical disintegration to
emerge and plan your business model around it

More Related Content

What's hot

Chapter 3 History and Geography The Foundations of Culture
Chapter 3   History and Geography The Foundations of Culture  Chapter 3   History and Geography The Foundations of Culture
Chapter 3 History and Geography The Foundations of Culture Water Birds (Ali)
 
Daimler chrysler - a cultural mismatch
Daimler chrysler - a cultural mismatchDaimler chrysler - a cultural mismatch
Daimler chrysler - a cultural mismatchManju Thomas
 
Dell Computer's Marketing Strategy
Dell Computer's Marketing StrategyDell Computer's Marketing Strategy
Dell Computer's Marketing StrategyChip Browne
 
Lg electronics global strategy in emerging markets
Lg electronics global strategy in emerging marketsLg electronics global strategy in emerging markets
Lg electronics global strategy in emerging marketsSaurabh Arora
 
Dell - Strategy Analysis
Dell - Strategy AnalysisDell - Strategy Analysis
Dell - Strategy AnalysisRory Tan
 
Dell PC & Laptop's Supply Chain Management
Dell PC & Laptop's Supply Chain ManagementDell PC & Laptop's Supply Chain Management
Dell PC & Laptop's Supply Chain ManagementFPT Univesity
 
Threadless the business of community
Threadless the business of communityThreadless the business of community
Threadless the business of communityARUNKUMAR A
 
chapter 13 powerpoinr.ppt
chapter 13 powerpoinr.pptchapter 13 powerpoinr.ppt
chapter 13 powerpoinr.pptBasmalaMohamed1
 
Samsung Industry and Firm Analysis
Samsung Industry and Firm AnalysisSamsung Industry and Firm Analysis
Samsung Industry and Firm AnalysisJeril Peter
 
Under armour case analysis by Njinyah Ciro
Under armour case analysis by Njinyah CiroUnder armour case analysis by Njinyah Ciro
Under armour case analysis by Njinyah CiroCiro Njinyah
 
Operations Strategy at Galanz
Operations Strategy at GalanzOperations Strategy at Galanz
Operations Strategy at GalanzSonal Ram
 
Apple Strategic Management Case Analysis
Apple Strategic Management Case AnalysisApple Strategic Management Case Analysis
Apple Strategic Management Case AnalysisKatherine Fitzsimmons
 
Samsung Case Study
Samsung Case StudySamsung Case Study
Samsung Case StudyShreya Joshi
 
Porters 5 forces for mobile industry
Porters 5 forces for mobile industryPorters 5 forces for mobile industry
Porters 5 forces for mobile industryGautham Reddy
 
11 The Strategy of International Business
11 The Strategy of International Business11 The Strategy of International Business
11 The Strategy of International BusinessBrent Weeks
 

What's hot (20)

Chapter 3 History and Geography The Foundations of Culture
Chapter 3   History and Geography The Foundations of Culture  Chapter 3   History and Geography The Foundations of Culture
Chapter 3 History and Geography The Foundations of Culture
 
Intel case study
Intel case studyIntel case study
Intel case study
 
Caterpillar inc strategy
Caterpillar inc strategyCaterpillar inc strategy
Caterpillar inc strategy
 
Daimler chrysler - a cultural mismatch
Daimler chrysler - a cultural mismatchDaimler chrysler - a cultural mismatch
Daimler chrysler - a cultural mismatch
 
Dell Computer's Marketing Strategy
Dell Computer's Marketing StrategyDell Computer's Marketing Strategy
Dell Computer's Marketing Strategy
 
Mg rover
Mg roverMg rover
Mg rover
 
Lg electronics global strategy in emerging markets
Lg electronics global strategy in emerging marketsLg electronics global strategy in emerging markets
Lg electronics global strategy in emerging markets
 
Dell - Strategy Analysis
Dell - Strategy AnalysisDell - Strategy Analysis
Dell - Strategy Analysis
 
Dlight Design case analysis
Dlight Design case analysisDlight Design case analysis
Dlight Design case analysis
 
Dell PC & Laptop's Supply Chain Management
Dell PC & Laptop's Supply Chain ManagementDell PC & Laptop's Supply Chain Management
Dell PC & Laptop's Supply Chain Management
 
Threadless the business of community
Threadless the business of communityThreadless the business of community
Threadless the business of community
 
chapter 13 powerpoinr.ppt
chapter 13 powerpoinr.pptchapter 13 powerpoinr.ppt
chapter 13 powerpoinr.ppt
 
Samsung Industry and Firm Analysis
Samsung Industry and Firm AnalysisSamsung Industry and Firm Analysis
Samsung Industry and Firm Analysis
 
Under armour case analysis by Njinyah Ciro
Under armour case analysis by Njinyah CiroUnder armour case analysis by Njinyah Ciro
Under armour case analysis by Njinyah Ciro
 
Operations Strategy at Galanz
Operations Strategy at GalanzOperations Strategy at Galanz
Operations Strategy at Galanz
 
Daimler-Chrysler case study
Daimler-Chrysler case study Daimler-Chrysler case study
Daimler-Chrysler case study
 
Apple Strategic Management Case Analysis
Apple Strategic Management Case AnalysisApple Strategic Management Case Analysis
Apple Strategic Management Case Analysis
 
Samsung Case Study
Samsung Case StudySamsung Case Study
Samsung Case Study
 
Porters 5 forces for mobile industry
Porters 5 forces for mobile industryPorters 5 forces for mobile industry
Porters 5 forces for mobile industry
 
11 The Strategy of International Business
11 The Strategy of International Business11 The Strategy of International Business
11 The Strategy of International Business
 

Viewers also liked

Ucaas portals make or buy
Ucaas portals make or buyUcaas portals make or buy
Ucaas portals make or buyAbdelKander
 
My toddler environment
My toddler environmentMy toddler environment
My toddler environmentCarmela Heal
 
High scope the learning environment
High scope the learning environmentHigh scope the learning environment
High scope the learning environmentJean Smith
 
EARLY CHILDHOOD EDUCATION PLANNING
EARLY CHILDHOOD EDUCATION PLANNINGEARLY CHILDHOOD EDUCATION PLANNING
EARLY CHILDHOOD EDUCATION PLANNINGchandranayaks
 
A Preschool Daily Routine & Effective Transitions
A Preschool Daily Routine & Effective TransitionsA Preschool Daily Routine & Effective Transitions
A Preschool Daily Routine & Effective TransitionsOxford Schools
 
Complete curriculum assignment
Complete curriculum assignmentComplete curriculum assignment
Complete curriculum assignmentfucik
 
HIGH SCOPE
HIGH SCOPEHIGH SCOPE
HIGH SCOPELIE2002
 
Observing Children and Writing Anecdotal Records
Observing Children and Writing Anecdotal RecordsObserving Children and Writing Anecdotal Records
Observing Children and Writing Anecdotal Recordsmbuurstra
 
Case Study: Ryanair - The future of the leading low fares airline
Case Study: Ryanair - The future of the leading low fares airlineCase Study: Ryanair - The future of the leading low fares airline
Case Study: Ryanair - The future of the leading low fares airlineAnton Wischnewski
 

Viewers also liked (13)

Ucaas portals make or buy
Ucaas portals make or buyUcaas portals make or buy
Ucaas portals make or buy
 
My toddler environment
My toddler environmentMy toddler environment
My toddler environment
 
Ryanair swot analysis
Ryanair swot analysisRyanair swot analysis
Ryanair swot analysis
 
High scope model
High scope modelHigh scope model
High scope model
 
High scope the learning environment
High scope the learning environmentHigh scope the learning environment
High scope the learning environment
 
EARLY CHILDHOOD EDUCATION PLANNING
EARLY CHILDHOOD EDUCATION PLANNINGEARLY CHILDHOOD EDUCATION PLANNING
EARLY CHILDHOOD EDUCATION PLANNING
 
A Preschool Daily Routine & Effective Transitions
A Preschool Daily Routine & Effective TransitionsA Preschool Daily Routine & Effective Transitions
A Preschool Daily Routine & Effective Transitions
 
Complete curriculum assignment
Complete curriculum assignmentComplete curriculum assignment
Complete curriculum assignment
 
HIGH SCOPE
HIGH SCOPEHIGH SCOPE
HIGH SCOPE
 
Observing Children and Writing Anecdotal Records
Observing Children and Writing Anecdotal RecordsObserving Children and Writing Anecdotal Records
Observing Children and Writing Anecdotal Records
 
Introduction to Scrum for Project Managers
Introduction to Scrum for Project ManagersIntroduction to Scrum for Project Managers
Introduction to Scrum for Project Managers
 
High scope
High scopeHigh scope
High scope
 
Case Study: Ryanair - The future of the leading low fares airline
Case Study: Ryanair - The future of the leading low fares airlineCase Study: Ryanair - The future of the leading low fares airline
Case Study: Ryanair - The future of the leading low fares airline
 

Similar to Business Model Canvas and Value Chains Explained

Бизнес-модели промышленного интернета и интернета вещей
Бизнес-модели промышленного интернета и интернета вещейБизнес-модели промышленного интернета и интернета вещей
Бизнес-модели промышленного интернета и интернета вещейSergey Zhdanov
 
Framework for Evaluating Enterprise Software Companies
Framework for Evaluating Enterprise Software CompaniesFramework for Evaluating Enterprise Software Companies
Framework for Evaluating Enterprise Software CompaniesShomik Ghosh
 
Network Effects, Platforms, Standards, and Complex Systems
Network Effects, Platforms, Standards, and Complex SystemsNetwork Effects, Platforms, Standards, and Complex Systems
Network Effects, Platforms, Standards, and Complex Systems Jeffrey Funk Business Models
 
MIT_competition-Sudanese Winners (ZainSudan mentorship)
MIT_competition-Sudanese Winners (ZainSudan mentorship)MIT_competition-Sudanese Winners (ZainSudan mentorship)
MIT_competition-Sudanese Winners (ZainSudan mentorship)Ahmed Elshaikh
 
Reinventing Business Models In A Time Of Crisis
Reinventing Business Models In A Time Of CrisisReinventing Business Models In A Time Of Crisis
Reinventing Business Models In A Time Of Crisispbaumard
 
Are you ready for Hosting 3.0?
Are you ready for Hosting 3.0?Are you ready for Hosting 3.0?
Are you ready for Hosting 3.0?HostingCon
 
Unit of Value: A Framework for Scaling
Unit of Value: A Framework for ScalingUnit of Value: A Framework for Scaling
Unit of Value: A Framework for ScalingGreylock Partners
 
Digital Economy
Digital EconomyDigital Economy
Digital EconomyPIREH
 
Venture Investment Themes
Venture Investment ThemesVenture Investment Themes
Venture Investment ThemesBrian Borton
 
The Telephone And Telegraph Corporation
The Telephone And Telegraph CorporationThe Telephone And Telegraph Corporation
The Telephone And Telegraph CorporationLori Gilbert
 
5 Tech-Enabled Business Trends in 2017
5 Tech-Enabled Business Trends in 20175 Tech-Enabled Business Trends in 2017
5 Tech-Enabled Business Trends in 2017eTailing India
 
frameworkforevaluatingenterprisesoftwarecompanies-190826155044.pdf
frameworkforevaluatingenterprisesoftwarecompanies-190826155044.pdfframeworkforevaluatingenterprisesoftwarecompanies-190826155044.pdf
frameworkforevaluatingenterprisesoftwarecompanies-190826155044.pdfssusere3ca261
 
Ch8 New Product And The Net
Ch8 New Product And The NetCh8 New Product And The Net
Ch8 New Product And The NetMrirfan
 
Cloud Computing/SaaS opportunity
Cloud Computing/SaaS opportunityCloud Computing/SaaS opportunity
Cloud Computing/SaaS opportunityFreeform Dynamics
 
New Product And The Net 7a
New Product And The Net 7aNew Product And The Net 7a
New Product And The Net 7aMrirfan
 
E - commerce As a part of information sys
E - commerce As a part of information sysE - commerce As a part of information sys
E - commerce As a part of information sys07Deeps
 
IBM - Transformation digitale et le SI des banques
IBM - Transformation digitale et le SI des banquesIBM - Transformation digitale et le SI des banques
IBM - Transformation digitale et le SI des banquesRodolphe Lezennec
 

Similar to Business Model Canvas and Value Chains Explained (20)

Бизнес-модели промышленного интернета и интернета вещей
Бизнес-модели промышленного интернета и интернета вещейБизнес-модели промышленного интернета и интернета вещей
Бизнес-модели промышленного интернета и интернета вещей
 
Business Structure
Business StructureBusiness Structure
Business Structure
 
Framework for Evaluating Enterprise Software Companies
Framework for Evaluating Enterprise Software CompaniesFramework for Evaluating Enterprise Software Companies
Framework for Evaluating Enterprise Software Companies
 
Network Effects, Platforms, Standards, and Complex Systems
Network Effects, Platforms, Standards, and Complex SystemsNetwork Effects, Platforms, Standards, and Complex Systems
Network Effects, Platforms, Standards, and Complex Systems
 
MIT_competition-Sudanese Winners (ZainSudan mentorship)
MIT_competition-Sudanese Winners (ZainSudan mentorship)MIT_competition-Sudanese Winners (ZainSudan mentorship)
MIT_competition-Sudanese Winners (ZainSudan mentorship)
 
Reinventing Business Models In A Time Of Crisis
Reinventing Business Models In A Time Of CrisisReinventing Business Models In A Time Of Crisis
Reinventing Business Models In A Time Of Crisis
 
Biz model 4 method of value capture
Biz model 4   method of value captureBiz model 4   method of value capture
Biz model 4 method of value capture
 
Are you ready for Hosting 3.0?
Are you ready for Hosting 3.0?Are you ready for Hosting 3.0?
Are you ready for Hosting 3.0?
 
Unit of Value: A Framework for Scaling
Unit of Value: A Framework for ScalingUnit of Value: A Framework for Scaling
Unit of Value: A Framework for Scaling
 
Digital Economy
Digital EconomyDigital Economy
Digital Economy
 
Venture Investment Themes
Venture Investment ThemesVenture Investment Themes
Venture Investment Themes
 
The Telephone And Telegraph Corporation
The Telephone And Telegraph CorporationThe Telephone And Telegraph Corporation
The Telephone And Telegraph Corporation
 
5 Tech-Enabled Business Trends in 2017
5 Tech-Enabled Business Trends in 20175 Tech-Enabled Business Trends in 2017
5 Tech-Enabled Business Trends in 2017
 
frameworkforevaluatingenterprisesoftwarecompanies-190826155044.pdf
frameworkforevaluatingenterprisesoftwarecompanies-190826155044.pdfframeworkforevaluatingenterprisesoftwarecompanies-190826155044.pdf
frameworkforevaluatingenterprisesoftwarecompanies-190826155044.pdf
 
Ch8 New Product And The Net
Ch8 New Product And The NetCh8 New Product And The Net
Ch8 New Product And The Net
 
Cloud Computing/SaaS opportunity
Cloud Computing/SaaS opportunityCloud Computing/SaaS opportunity
Cloud Computing/SaaS opportunity
 
New Product And The Net 7a
New Product And The Net 7aNew Product And The Net 7a
New Product And The Net 7a
 
E - commerce As a part of information sys
E - commerce As a part of information sysE - commerce As a part of information sys
E - commerce As a part of information sys
 
IT Agility&Innovation
IT Agility&InnovationIT Agility&Innovation
IT Agility&Innovation
 
IBM - Transformation digitale et le SI des banques
IBM - Transformation digitale et le SI des banquesIBM - Transformation digitale et le SI des banques
IBM - Transformation digitale et le SI des banques
 

More from Jeffrey Funk Business Models

Ola Cabs: Dominating India and Challenging Uber at Global Level
Ola Cabs: Dominating India and Challenging Uber at Global LevelOla Cabs: Dominating India and Challenging Uber at Global Level
Ola Cabs: Dominating India and Challenging Uber at Global LevelJeffrey Funk Business Models
 
Zomato: Transforming the Global Restaurant Business
Zomato: Transforming the Global Restaurant BusinessZomato: Transforming the Global Restaurant Business
Zomato: Transforming the Global Restaurant BusinessJeffrey Funk Business Models
 
Beyond Flipped Classrooms and MOOCs: The future of engineering and management...
Beyond Flipped Classrooms and MOOCs: The future of engineering and management...Beyond Flipped Classrooms and MOOCs: The future of engineering and management...
Beyond Flipped Classrooms and MOOCs: The future of engineering and management...Jeffrey Funk Business Models
 
Value Propositions and Billion Dollar Startup Club
Value Propositions and Billion Dollar Startup ClubValue Propositions and Billion Dollar Startup Club
Value Propositions and Billion Dollar Startup ClubJeffrey Funk Business Models
 

More from Jeffrey Funk Business Models (20)

Online Education: A New Business Model
Online Education: A New Business ModelOnline Education: A New Business Model
Online Education: A New Business Model
 
Biz Models for High-Tech Products
Biz Models for High-Tech ProductsBiz Models for High-Tech Products
Biz Models for High-Tech Products
 
Ola Cabs: Dominating India and Challenging Uber at Global Level
Ola Cabs: Dominating India and Challenging Uber at Global LevelOla Cabs: Dominating India and Challenging Uber at Global Level
Ola Cabs: Dominating India and Challenging Uber at Global Level
 
PlugSurfing: global network of charging stations
PlugSurfing: global network of charging stationsPlugSurfing: global network of charging stations
PlugSurfing: global network of charging stations
 
Zomato: Transforming the Global Restaurant Business
Zomato: Transforming the Global Restaurant BusinessZomato: Transforming the Global Restaurant Business
Zomato: Transforming the Global Restaurant Business
 
Vishuo Biomedical
Vishuo BiomedicalVishuo Biomedical
Vishuo Biomedical
 
Beyond Flipped Classrooms and MOOCs: The future of engineering and management...
Beyond Flipped Classrooms and MOOCs: The future of engineering and management...Beyond Flipped Classrooms and MOOCs: The future of engineering and management...
Beyond Flipped Classrooms and MOOCs: The future of engineering and management...
 
Value Propositions and Billion Dollar Startup Club
Value Propositions and Billion Dollar Startup ClubValue Propositions and Billion Dollar Startup Club
Value Propositions and Billion Dollar Startup Club
 
Augmented Reality for Travel: A Business Model
Augmented Reality for Travel: A Business ModelAugmented Reality for Travel: A Business Model
Augmented Reality for Travel: A Business Model
 
Molecular Sensor from SCIO
Molecular Sensor from SCIOMolecular Sensor from SCIO
Molecular Sensor from SCIO
 
Garena Online
Garena OnlineGarena Online
Garena Online
 
Expliseat - World's Lightest Seats
Expliseat - World's Lightest SeatsExpliseat - World's Lightest Seats
Expliseat - World's Lightest Seats
 
Google Cardboard
Google CardboardGoogle Cardboard
Google Cardboard
 
Theranos Biz Model
Theranos Biz ModelTheranos Biz Model
Theranos Biz Model
 
Airware for Drones
Airware for DronesAirware for Drones
Airware for Drones
 
Wireless charging: Qualcomm and Bosch
Wireless charging: Qualcomm and BoschWireless charging: Qualcomm and Bosch
Wireless charging: Qualcomm and Bosch
 
Jasper, Internet of Things
Jasper, Internet of ThingsJasper, Internet of Things
Jasper, Internet of Things
 
Slack
SlackSlack
Slack
 
Oscar health insurance
Oscar health insuranceOscar health insurance
Oscar health insurance
 
Zenefits
Zenefits  Zenefits
Zenefits
 

Recently uploaded

Onemonitar Android Spy App Features: Explore Advanced Monitoring Capabilities
Onemonitar Android Spy App Features: Explore Advanced Monitoring CapabilitiesOnemonitar Android Spy App Features: Explore Advanced Monitoring Capabilities
Onemonitar Android Spy App Features: Explore Advanced Monitoring CapabilitiesOne Monitar
 
Introducing the Analogic framework for business planning applications
Introducing the Analogic framework for business planning applicationsIntroducing the Analogic framework for business planning applications
Introducing the Analogic framework for business planning applicationsKnowledgeSeed
 
Church Building Grants To Assist With New Construction, Additions, And Restor...
Church Building Grants To Assist With New Construction, Additions, And Restor...Church Building Grants To Assist With New Construction, Additions, And Restor...
Church Building Grants To Assist With New Construction, Additions, And Restor...Americas Got Grants
 
Pitch Deck Teardown: Xpanceo's $40M Seed deck
Pitch Deck Teardown: Xpanceo's $40M Seed deckPitch Deck Teardown: Xpanceo's $40M Seed deck
Pitch Deck Teardown: Xpanceo's $40M Seed deckHajeJanKamps
 
How Generative AI Is Transforming Your Business | Byond Growth Insights | Apr...
How Generative AI Is Transforming Your Business | Byond Growth Insights | Apr...How Generative AI Is Transforming Your Business | Byond Growth Insights | Apr...
How Generative AI Is Transforming Your Business | Byond Growth Insights | Apr...Hector Del Castillo, CPM, CPMM
 
Horngren’s Financial & Managerial Accounting, 7th edition by Miller-Nobles so...
Horngren’s Financial & Managerial Accounting, 7th edition by Miller-Nobles so...Horngren’s Financial & Managerial Accounting, 7th edition by Miller-Nobles so...
Horngren’s Financial & Managerial Accounting, 7th edition by Miller-Nobles so...ssuserf63bd7
 
Fordham -How effective decision-making is within the IT department - Analysis...
Fordham -How effective decision-making is within the IT department - Analysis...Fordham -How effective decision-making is within the IT department - Analysis...
Fordham -How effective decision-making is within the IT department - Analysis...Peter Ward
 
NAB Show Exhibitor List 2024 - Exhibitors Data
NAB Show Exhibitor List 2024 - Exhibitors DataNAB Show Exhibitor List 2024 - Exhibitors Data
NAB Show Exhibitor List 2024 - Exhibitors DataExhibitors Data
 
WSMM Media and Entertainment Feb_March_Final.pdf
WSMM Media and Entertainment Feb_March_Final.pdfWSMM Media and Entertainment Feb_March_Final.pdf
WSMM Media and Entertainment Feb_March_Final.pdfJamesConcepcion7
 
1911 Gold Corporate Presentation Apr 2024.pdf
1911 Gold Corporate Presentation Apr 2024.pdf1911 Gold Corporate Presentation Apr 2024.pdf
1911 Gold Corporate Presentation Apr 2024.pdfShaun Heinrichs
 
Entrepreneurship lessons in Philippines
Entrepreneurship lessons in  PhilippinesEntrepreneurship lessons in  Philippines
Entrepreneurship lessons in PhilippinesDavidSamuel525586
 
Technical Leaders - Working with the Management Team
Technical Leaders - Working with the Management TeamTechnical Leaders - Working with the Management Team
Technical Leaders - Working with the Management TeamArik Fletcher
 
Darshan Hiranandani [News About Next CEO].pdf
Darshan Hiranandani [News About Next CEO].pdfDarshan Hiranandani [News About Next CEO].pdf
Darshan Hiranandani [News About Next CEO].pdfShashank Mehta
 
Send Files | Sendbig.comSend Files | Sendbig.com
Send Files | Sendbig.comSend Files | Sendbig.comSend Files | Sendbig.comSend Files | Sendbig.com
Send Files | Sendbig.comSend Files | Sendbig.comSendBig4
 
Go for Rakhi Bazaar and Pick the Latest Bhaiya Bhabhi Rakhi.pptx
Go for Rakhi Bazaar and Pick the Latest Bhaiya Bhabhi Rakhi.pptxGo for Rakhi Bazaar and Pick the Latest Bhaiya Bhabhi Rakhi.pptx
Go for Rakhi Bazaar and Pick the Latest Bhaiya Bhabhi Rakhi.pptxRakhi Bazaar
 
APRIL2024_UKRAINE_xml_0000000000000 .pdf
APRIL2024_UKRAINE_xml_0000000000000 .pdfAPRIL2024_UKRAINE_xml_0000000000000 .pdf
APRIL2024_UKRAINE_xml_0000000000000 .pdfRbc Rbcua
 
1911 Gold Corporate Presentation Apr 2024.pdf
1911 Gold Corporate Presentation Apr 2024.pdf1911 Gold Corporate Presentation Apr 2024.pdf
1911 Gold Corporate Presentation Apr 2024.pdfShaun Heinrichs
 
WSMM Technology February.March Newsletter_vF.pdf
WSMM Technology February.March Newsletter_vF.pdfWSMM Technology February.March Newsletter_vF.pdf
WSMM Technology February.March Newsletter_vF.pdfJamesConcepcion7
 
Driving Business Impact for PMs with Jon Harmer
Driving Business Impact for PMs with Jon HarmerDriving Business Impact for PMs with Jon Harmer
Driving Business Impact for PMs with Jon HarmerAggregage
 

Recently uploaded (20)

WAM Corporate Presentation April 12 2024.pdf
WAM Corporate Presentation April 12 2024.pdfWAM Corporate Presentation April 12 2024.pdf
WAM Corporate Presentation April 12 2024.pdf
 
Onemonitar Android Spy App Features: Explore Advanced Monitoring Capabilities
Onemonitar Android Spy App Features: Explore Advanced Monitoring CapabilitiesOnemonitar Android Spy App Features: Explore Advanced Monitoring Capabilities
Onemonitar Android Spy App Features: Explore Advanced Monitoring Capabilities
 
Introducing the Analogic framework for business planning applications
Introducing the Analogic framework for business planning applicationsIntroducing the Analogic framework for business planning applications
Introducing the Analogic framework for business planning applications
 
Church Building Grants To Assist With New Construction, Additions, And Restor...
Church Building Grants To Assist With New Construction, Additions, And Restor...Church Building Grants To Assist With New Construction, Additions, And Restor...
Church Building Grants To Assist With New Construction, Additions, And Restor...
 
Pitch Deck Teardown: Xpanceo's $40M Seed deck
Pitch Deck Teardown: Xpanceo's $40M Seed deckPitch Deck Teardown: Xpanceo's $40M Seed deck
Pitch Deck Teardown: Xpanceo's $40M Seed deck
 
How Generative AI Is Transforming Your Business | Byond Growth Insights | Apr...
How Generative AI Is Transforming Your Business | Byond Growth Insights | Apr...How Generative AI Is Transforming Your Business | Byond Growth Insights | Apr...
How Generative AI Is Transforming Your Business | Byond Growth Insights | Apr...
 
Horngren’s Financial & Managerial Accounting, 7th edition by Miller-Nobles so...
Horngren’s Financial & Managerial Accounting, 7th edition by Miller-Nobles so...Horngren’s Financial & Managerial Accounting, 7th edition by Miller-Nobles so...
Horngren’s Financial & Managerial Accounting, 7th edition by Miller-Nobles so...
 
Fordham -How effective decision-making is within the IT department - Analysis...
Fordham -How effective decision-making is within the IT department - Analysis...Fordham -How effective decision-making is within the IT department - Analysis...
Fordham -How effective decision-making is within the IT department - Analysis...
 
NAB Show Exhibitor List 2024 - Exhibitors Data
NAB Show Exhibitor List 2024 - Exhibitors DataNAB Show Exhibitor List 2024 - Exhibitors Data
NAB Show Exhibitor List 2024 - Exhibitors Data
 
WSMM Media and Entertainment Feb_March_Final.pdf
WSMM Media and Entertainment Feb_March_Final.pdfWSMM Media and Entertainment Feb_March_Final.pdf
WSMM Media and Entertainment Feb_March_Final.pdf
 
1911 Gold Corporate Presentation Apr 2024.pdf
1911 Gold Corporate Presentation Apr 2024.pdf1911 Gold Corporate Presentation Apr 2024.pdf
1911 Gold Corporate Presentation Apr 2024.pdf
 
Entrepreneurship lessons in Philippines
Entrepreneurship lessons in  PhilippinesEntrepreneurship lessons in  Philippines
Entrepreneurship lessons in Philippines
 
Technical Leaders - Working with the Management Team
Technical Leaders - Working with the Management TeamTechnical Leaders - Working with the Management Team
Technical Leaders - Working with the Management Team
 
Darshan Hiranandani [News About Next CEO].pdf
Darshan Hiranandani [News About Next CEO].pdfDarshan Hiranandani [News About Next CEO].pdf
Darshan Hiranandani [News About Next CEO].pdf
 
Send Files | Sendbig.comSend Files | Sendbig.com
Send Files | Sendbig.comSend Files | Sendbig.comSend Files | Sendbig.comSend Files | Sendbig.com
Send Files | Sendbig.comSend Files | Sendbig.com
 
Go for Rakhi Bazaar and Pick the Latest Bhaiya Bhabhi Rakhi.pptx
Go for Rakhi Bazaar and Pick the Latest Bhaiya Bhabhi Rakhi.pptxGo for Rakhi Bazaar and Pick the Latest Bhaiya Bhabhi Rakhi.pptx
Go for Rakhi Bazaar and Pick the Latest Bhaiya Bhabhi Rakhi.pptx
 
APRIL2024_UKRAINE_xml_0000000000000 .pdf
APRIL2024_UKRAINE_xml_0000000000000 .pdfAPRIL2024_UKRAINE_xml_0000000000000 .pdf
APRIL2024_UKRAINE_xml_0000000000000 .pdf
 
1911 Gold Corporate Presentation Apr 2024.pdf
1911 Gold Corporate Presentation Apr 2024.pdf1911 Gold Corporate Presentation Apr 2024.pdf
1911 Gold Corporate Presentation Apr 2024.pdf
 
WSMM Technology February.March Newsletter_vF.pdf
WSMM Technology February.March Newsletter_vF.pdfWSMM Technology February.March Newsletter_vF.pdf
WSMM Technology February.March Newsletter_vF.pdf
 
Driving Business Impact for PMs with Jon Harmer
Driving Business Impact for PMs with Jon HarmerDriving Business Impact for PMs with Jon Harmer
Driving Business Impact for PMs with Jon Harmer
 

Business Model Canvas and Value Chains Explained

  • 1. A/Prof Jeffrey Funk Division of Engineering and Technology Management National University of Singapore
  • 2. Business Model  Value proposition: what to offer and how to differentiate  Customer selection: whom to serve and not serve  Scope of activities: what activities to carry out and what relationships to have  Value capture: dominant sources of revenue  Strategic control: how to sustain profitability (e.g., how to control architecture and standards)
  • 3. Scope of Activities  Constantly changing, creating opportunities for new firms  Mostly changing towards vertical disintegration, thus enabling more firms to participate in an industry  Examples  Examples  Automobiles  Apparel  Internet  Construction  Movie Production  Agriculture?  Personal computers  Semiconductors  Broadcasting  Music  Mobile Phones  Exceptions  Hospitals?  Oil Companies?
  • 4. Scope of Activities (2)  Extreme example: There are millions of firms in the vertically disintegrated Internet!  Facebook, YouTube, newspapers (e.g. blogs), and others have outsourced content production to users  Current big growth area is mobile phone based software, e-commerce, and consumer Internet firms  Rapid growth in users, apps, and firms - think Xiaomi, Uber, Snapchat, Flipkart, Spotify, WeWork, and many more  Many members of Billion Dollar Startup Club benefited from vertical disintegration  Many more will benefit as wearable computing and IoT experience vertical disintegration  Number of software and content firms will be much larger than hardware firms
  • 5.  Recent Startups  with valuations over $1 Billion  and are still private (no IPO yet)  sometimes called Unicorns  97 firms as of June 2015  With 19 other firms in list, that exited in recent years due to IPOs, acquisitions or decreasing value (total of 116 firms)  High valuations mean investors believe these firms are offering something valuable, unique, and hard to copy  Some of them will  lead to creative destruction  have $100 Billion plus market capitalizations in the future, like the strongest hi-tech startups: Apple, Google, Amazon, and Microsoft Billion Dollar Startup Club
  • 6. Many of these firms have put the puzzle together differently Created new blocks, with new interfaces Some represent more detailed modules Some have completely different boundaries
  • 7. Outline  Definitions/Review  Scope of activities  Value configuration: chains, shops, networks  Examples  Computers  Video Consoles/Games  Music  Mobile Phones  Conclusions
  • 8. Scope of Activities  What do you make or do, versus what do you buy or outsource?  Partly a cost decision, partly a strategic decision  Want to reduce costs  But also a strategic issue  want to develop capabilities  don’t want to become dependent on a single firm for a key component  Thus, make versus buy decisions determine the areas in which a firm intends to compete
  • 9. Example of Strategic Issue  If an automobile supplier stops making engines, can it begin making them again?  If a leading automobile firm begins selling engines to other firms,  will this help its competitors and thus hurt its auto sales?  or will this enable greater development spending?  How about the country level?  Similar things in other industries, particularly materials industries where performance depends on close integration of everything
  • 10. Other Strategic Issues  Part of the make or buy decision involves whether you can buy or outsource something –  this depends on the degree to which independent suppliers of components and services (i.e., vertical disintegration) have emerged  This is why one must consider the levels of vertical (dis) integration in the industry using value chains, etc when considering the scope of activities  Increasing amounts of vertical disintegration may provide firms with new opportunities for outsourcing  You must be aware of how industries are evolving when you determine your scope of activities
  • 11. Vertical (Dis)integration  Represents extent to which work is shared among different organizations  Changes in vertical (dis)integration can come from technological, institutional, or social changes  In particular, reductions in transaction cost lower  costs of having work done by multiple firms/agents  importance of integrative capabilities  and thus facilitate the emergence of vertical disintegration (and entrepreneurial opportunities)
  • 12. Reducing “Transaction” Costs  Emergence of standards often leads to reductions in transaction costs  Political and regulatory changes can also lead to lower transaction costs  Whether these reductions in transaction costs also lead to emergence of vertical disintegration also depends on whether  standards are open?  different capabilities required?  economies of scale or network effects exist?
  • 13. Bottom-Up vs. Top-Down  Much of vertical disintegration has emerged from bottom-up  For example, firms must design their electronic systems around available microprocessors, operating systems, and other ICs and software  This is because specific ICs and OSs have become “standards” with large network effects (session 5)  As all mechanical products and systems become connected e.g., wearable computing and Internet of Things), vertical disintegration will occur and it will probably occur through bottom-up and not top-down  This is very different from how systems engineering and systems architecture modules are taught  Suppliers of ICs and software will continue their efforts to make their products standards and venture capitalists will reward promising firms
  • 14. As an Aside  How is Horizontal (Dis)integration different from Vertical (Dis)integration?  Most profitable firms are usually more vertically integrated than other firms
  • 15. Horizontal (Dis)integration  Scope of products that a firm offers  Similar to narrow or broad market scope that were discussed in first Week  Apple offers many kinds of electronic products  Desktop computers, laptop computers  MP3 players, Phones  Tablet computers  Televisions
  • 16. As an Aside  Most profitable firms are usually more vertically integrated than other firms  Thus, although these slides emphasize vertical disintegration, this is only because new entrants pursue this strategy due to lower barriers to entry  Examples of profitable vertically integrated firms  IBM  Intel  Big chemical and oil firms  Samsung
  • 17. Outline  Definitions/Review  Scope of activities  Value configuration: chains, shops, networks  Examples  Computers  Video Consoles/Games  Music  Mobile Phones  Conclusions
  • 18. Firm infrastructure activities Human resource management Research, development and design Purchasing, inventory holding, materials handling Manufac- turing Outbound logistics Market- ing & Sales Dealer support and customer service Support activities Primary activities Purchasing Vendor relations Inbound logistics Inventory holding Materials handling Raw materials Capacity Location Parts production Assembly Prices Advertising Promotion Sales force Packaging Brand Sales Channels Inventory Warehousing Transport Warranty Speed Captive/ independent Value chains Issues
  • 19. Value Chains for Individual Firms Exist within Larger Value Chains Supplier Firm Channel Buyer Value Value Value Value Chains Chain Chains Chains
  • 20. The Degree to which One Firm does all these activities is Called “Scope of Activities” or Vertical Integration (the opposite is vertical disintegration) Some people use the term industry architecture to describe the level of vertical integration Supplier Firm Channel Buyer Value Value Value Value Chains Chain Chains Chains
  • 21. Value Shops  The primary activity is finding out what the customer wants and how to fulfill it  Examples  Health care  Travel agencies  Real estate companies  Financial institutions  Education  Technology, in particular the Internet is changing the way value shops can be managed
  • 22. Value Networks  Firms operate as brokers between buyers and sellers in a value network  Network effects play a larger role in value networks than in value chains or value shops  Examples  Before the Internet: banks, stock brokers, newspaper classified ads, video games  Change to value network or increased importance of value network by the Internet: employment sites, E-Bay, real- estate sites, Amazon.com  Many successful Internet sites are value networks
  • 23. Scope of Activities  Firms operating in value shops or value networks must also think about their scope of activities  Vertical disintegration has emerged in many of value shops and value networks at a global level (Internet is a big facilitator). Examples:  U.S. hospitals outsource medical decisions to Indian doctors by using the Internet  Universities outsource courses to contract professors that teach in class or over the Internet  This vertical disintegration increases the number of choices for firms with respect to scope of activities
  • 24. Impact of Vertical Disintegration on Other Aspects of a Business Model (1)  Vertical disintegration complicates the choice of value capture, customer selection, value proposition by increasing the number of firms involved with delivering value to the final customer  Firms must consider impact of their choices (methods of value capture, customer selection, value proposition) on their suppliers, customers, and other firms (e.g., collaborators) that supply complementary products
  • 25. Impact of Vertical Disintegration on Other Aspects of a Business Model (2)  If suppliers of complementary products do not focus on same customers or value propositions, or implement complementary methods of value capture, then your business may not grow  If your method of value capture prevents  suppliers of complementary products from making money, complementary products will not emerge  retailers or distributors from making money, they will not distribute your products  Many of the examples below involve these issues
  • 26. Outline  Definitions/Review  Scope of activities  Value configuration: chains, shops, networks  Examples  Computers  Video Consoles/Games  Music  Mobile Phones  Conclusions
  • 27. Computers  Many changes in computer sector over last 60 years – including changes in leading firms  In discontinuities (relevant to value propositions): mainframe, mini, personal, portable  In lead customers  from accounting departments to  scientists and engineers to  Small firms, professionals, and home professionals  mobile professionals  In methods of value capture  from leasing and/or selling them with a sales force to  selling them through a retail outlet to  selling them online to  licensing software
  • 28. Other Changes (1)  Emergence of relatively open interface standards between  computers and peripherals  computers and remote services  computers, LAN, and Internet  operating system and application software  in some cases operating systems and microprocessor  Rising development cost for OS, application software and microprocessors  6 Billion USD to develop Windows Vista, the 2007 Windows operating system  Between 100 Million and 1 Billion USD to develop high-end microprocessor  Emergence of these standards (and high development costs) supported emergence of vertical disintegration
  • 29. Other Changes (2)  Political/regulatory decisions  US government forced IBM to unbundle hardware and software in late 1960s  But didn’t force Microsoft to unbundle operating system and application software in 1990s, as European Union did  U.S. government supported the development of open standards and commercialization of the Internet  Universities defined open standards for the Internet  These decisions also enabled vertical disintegration to emerge
  • 30. Emergence of Vertical Disintegration  Enabled smaller scope of activities, lower development costs and thus reduced barriers to entry  And thus impacted on business model  In combination with other changes (e.g., changes in value capture, changes in lead customers, dimensions of performance), led to dramatic changes in the leading firms
  • 31. Source: Christensen & Raynor, 2003 Vertical Disintegration Emergence of Standards Drove:
  • 32. The Computer Industry: 1980 Top 10 Public Companies in US Computer Industry (Area reflects market capitalization value in constant US $) Services S P Systems Integration E R R Applications Layer Y D CVC Middleware Layer U H E Operating Systems IBM N P C S Hardware Y XRC S AMP Components TI Intel XRC: Xerox; Source: Source: Carliss Baldwin and Kim Clark
  • 33. The Computer Industry: 1995 Top 10 Public Companies in US Computer Industry (Area reflects market value in constant US $) Services First Data Systems Integration EDS Oracle I CA Applications Layer B MSFT Middleware LayerM Operating Systems Hardware: Printers HP Hardware: Servers IBM Hardware: Routers Cisco Components Intel Micron S P E R R Y D CVC U H E IBM N P C S Y XRC S AMP TI Intel Abbreviations: CA (Computer associates); EDS (Electronic Data Systems); MSFT (Microsoft); Source: Carliss Baldwin and Kim Clark 1980
  • 34. The Computer Industry: 2004 Top 10 Public Companies in US Computer Industry (Area reflects market value in constant US $) Services First Data ADP Systems Integration Oracle Applications Layer IBM Middleware Layer MSFT Operating Systems Hardware: Printers HP Hardware: PCs Dell Hardware: Servers IBM Hardware: Routers Cisco Components Intel TI Abbreviations: ADP (Automatic Data Processing); MSFT (Microsoft); Source: Carliss Baldwin and Kim Clark 1995
  • 35. Market Capitalization in 2007  Microsoft - $264B  Google - $210B New to list  Cisco - $189B  Apple Inc. - $162B New to list  IBM - $159B  Intel - $155B  HP - $112.57B  Dell - $45.09B Source: http://en.wikipedia.org/wiki/List_of_information_ technology_companies_by_market_capitalization
  • 36. Rank Company Market Capitalization Type of Business 1 Apple $742 Billion Hardware 3 Google $375 Billion Search 4 Microsoft $360 Billion Software 21 Facebook $211 Billion Content 26 Oracle $192 Billion Software 30 Amazon $177 Billion Online Sales 37 Intel $171 Billion Integrated Circuits 39 Samsung $162 Billion Electronics 40 IBM $158 Billion Hardware 41 Tencent $156 Billion Internet content 43 Comcast $153 Billion Cable TV, content 51 Cisco $150 Billion Hardware 53 TMSC $122 Billion Integrated Circuits 57 Qualcomm $117 Billion Integrated Circuits 98 SAP $92 Billion Software Top IT Firms Among Top 100 - Market Capitalization (17 Feb 2015) http://www.corpo rateinformation.c om/Top- 100.aspx?topcase =b%3b+http%3a %2f%2fwww.lib. uwo.ca%2fnews %2fbusiness%2f 2011%2f04%2f0 8%2ftopglobal10 0companiesbyma rketcapitalization. html
  • 38. New Additions to Top 10 Firms Benefited from Emergence of Vertical Disintegration Year Firm Vertically disintegrated layer 1995 First Data, EDS Remote services Oracle, Comp. Assoc. Application software Cisco Routers, emergence of Internet Microsoft Operating systems 2004 ADP Remote services Dell Personal computers 2007/ 2010 Google Internet and search engines Apple Internet: computers and content SAP AG Application software Amazon.com, Tencent Internet and Internet content Comcast Cable TV, content
  • 39.  Cloud Computing: Dropbox, Pure Storage (also hardware), Nutanix, Jasper Technologies (IoT), AppDynamics, Box  Big Data: Palantir, InsideSales.com, Deem, New Relic  Open Source: Cloudera, Automatic, Hortonworks  Online Ads: InMobi, AppNexus, IronSource  Security: Tanium, Good Technology, Lookout  Database: MongoDB, MarkLogic  Integration Platforms: MuleSoft, SimpliVity  Tools (for individual and enterprise): Zenefits, DocuSign, Slack, Sprinklr, Actifo, Qualtrics, Shopify, Cloud Flare, Evernote Software Suppliers in Billion Dollar Startup Club Benefit from Vertical Disintegration
  • 40. Why Big Changes in Leading Firms  Because change creates opportunities for new firms  Changes in Technology (value propositions, discontinuities): mainframe, mini, PC, portable, Internet, smart phone, tablet  Changes in lead customers for hardware  from accounting departments to  scientists and engineers to mobile professionals  Changes in methods of value capture  from leasing and/or selling them with a sales force to  selling them through a retail outlet to  licensing software  Changes in levels of vertical disintegration  Challenged incumbents and enabled many firms to co-exist
  • 41. Why are Some Firms Most Profitable (Method of Strategic Control)  Controlled key interfaces (standards) at some point in time  IBM: interfaces in mainframe computer  Microsoft and Intel: operating system and microprocessor in PC  Cisco: IOS in routers  Very innovative  Apple in i-pod, i-phone, and i-pad  Benefited from Network Effects, Switching Costs, Lock-in  IBM in mainframe; Microsoft and Intel in PC (Wintel)  Cisco: in routers; Google in search  Oracle and SAP: application software for big clients  Apple in i-pod, i-phone, and i-pad  Next week, we talk about Method of Strategic Control
  • 42. Outline  Definitions/Review  Scope of activities  Value configuration: chains, shops, networks  Examples  Computers  Video Consoles/Games  Music  Mobile Phones  Conclusions
  • 43. Outline  Definitions/Review  Scope of activities  Value configuration: chains, shops, networks  Examples  Computers  Video Consoles/Games  Mobile Phones  Mobile phone apps, e-commerce, and software  Implications for IoT and Wearable Computing
  • 44. Video Consoles and Games  How are video consoles similar to PCs?  Vertical disintegration has also emerged in video consoles  But  Less vertical disintegration in video consoles than in PCs  And manufacturers make more money than do software (game) providers  Why these differences?
  • 45. Consumers Developers Tools and Middleware Providers Console Maker Publishers Content Providers Value Network for Video Consoles and Games Games Consoles & Games Royalties Content Financing Games Games
  • 46. Business Model for Video Game Consoles  Value proposition  Provide graphic intensive game consoles  Growing niches: PC, Internet and mobile games  Customer selection  Mostly high-end graphic-loving users  Growing niches: PC, Internet and mobile games  Scope of activities  Vertically disintegrated: different firms provide hardware and software  Value capture  Console manufacturers take most of revenues including portion of independently sold game software revenues  How do they do this? Source: Pong, Chapter 6 in Invisible Engines
  • 47. Method of Value Capture for Video Game Firms  Video game console manufacturers  Include authentication chips in the games in order to prevent unauthorized games from being played  Take a portion of game revenues (20% ?, $3-$9 per game) on their games  Discount sales of consoles by >$100  Game publishers and developers  Revenues from sales of games  Divided up between publishers, developers, and content providers (e.g., basketball player’s image)  Tool providers  Sale of tools  But must pay a licensing fee ($12,000) to console suppliers for technical information Source: Pong, Chapter 6 in Invisible Engines
  • 48. Why Differences? Why are Manufacturers and not OS and IC suppliers dominant in Video Games? Why isn’t there as much vertical disintegration in video games as in PCs?
  • 49. Why are Manufacturers and not OS and IC suppliers dominant in Video Games?  Vertically disintegrated layers of operating systems and microprocessors have not appeared in video consoles  Graphic performance of games depends on integral design of operating systems, processors, and other ICs (but changing)  Compatibility between users (which comes from standard OSs) is not as important as with PCs (but changing)  Pricing strategy is also different – discount consoles and charge software providers a royalty fee (razor blade strategy), partly because users buy a large variety of software  Games played on PCs (including online games) undergo a different set of competitive dynamics than those on video consoles (but becoming more important)
  • 50.  What do you think would happen if a console supplier tried to introduce a business model like that found in the PC industry?  Open system?  No royalties?  Instead pay for software that is loaded onto computer?
  • 51. Outline  Definitions/Review  Scope of activities  Value configuration: chains, shops, networks  Examples  Computers  Video Consoles/Games  Music  Mobile Phones  Conclusions
  • 52. Old Business Model for Music-Related Firms (1)  Value proposition  For many years music companies bundled songs from top-name artists into record, tape, CD. Now they try to sell singles over Internet  Manufacturers focused on quality, design, and price but sales of special audio players are dropping  Customer selection  mostly young people
  • 53. Old Business Model for Music-Related Firms (2)  Scope of activities  Vertically disintegration between music and players  Vertical integration within players and within music  Value capture  Music companies take large percentage of music sales through long-term contracts with artists  Hardware manufacturers use production business model but special purpose players are disappearing
  • 54. Apple Changed Scope of Activities & Value Capture for Music: It sells both players and music and subsidizes music Music Companies Music Companies Consumers Consumers Old Value Chain New Value Chain Design, Make Music Players & Components Retail RetailRetail Components Design andRetail Apple Players Music Artists Composers
  • 55. But Apple Purchased Most of the Components  Storage: Intel micro hard disk / memory chips  Battery: Sony Lithium polymer technology  Connectivity: Firewire standard  Software: ARM architecture  Microprocessor: Samsung processor  User Interface : Pixo, a cell phone software developer Source: Group 5 in past Class
  • 56. Apple Still Purchases Most of the Components
  • 57. Apple’s Scope of Activities  Represents a completely different level of vertical disintegration, i.e., scope of activities, from previous solutions  More investments in retail outlets than in assembly or manufacture and development of components  Thus, return on investment depends more on level of investment in retail outlets than in manufacturing  Other firms are replicating this business model  Consumer electronics firms enter retail: Nokia, Sony, and others in retail outlets  Web firms design consumer electronics but outsource manufacturing: Amazon Amazon Kindle, B&N with Nook; Google with Google TV
  • 58. Apple and Other Firms have Created Retail Outlets  Creating retail outlets is one way of enhancing brand image  Many phone manufacturers and other suppliers of consumer electronics (Sony) have created retail outlets  These suppliers now compete with traditional retail outlets (Best Denki, Harvey Norman, Courts) that also sell products from these suppliers  Even most clothing manufacturers emphasize retail more than manufacturing  Levi was the king of clothing in the 1970s and slow to create retail outlets
  • 59. Apple has also succeeded in Content  Developed successful eco-systems of content providers for i-Pod, iPhone  Music for i-Pod  Apps for i-Phones  Can Apple create new eco-systems of content providers for  Tablet computers?  Smart watches?  Apple TV?  Apple Pay?  These skills may be as important as those for design (and certainly more important than manufacturing)
  • 60. Outline  Definitions/Review  Scope of activities  Value configuration: chains, shops, networks  Examples  Computers  Video Consoles/Games  Music  Mobile Phones  Conclusions
  • 61. Batteries Vertical Disintegration Existed at the Start of Mobile Phone Services in 1980s Phone Manufacturers Displays Interface defined by air-interface standards such as GSM and CDMA Chips Software Service Providers Base Stations Switching Equipment Network Software Retail Customer
  • 62. Value Chains for Phones  Have become highly vertically disintegrated  Most variable costs are materials (see next slide)  Also encourages entry by new phone manufacturers (many in China, e.g., Xiaomi)  Development costs are also low  First iPhone - $150 million  More recent phones - $15 million  Development costs for integrated circuits are much higher  Smart phone processors - $1 billion  Simpler chips - $20 – 100 million Gizlogy, 2015. http://gizlogy.com/apple-iphone-generations-time-line/ McKinsey, 2013. file:///C:/Users/etmfjl/Downloads/4_ChipDesign.pdf Vance A 2010. For Chip Makers, the Next Battle is in Smartphones, February 21, 2010. Yota, 2015. http://rostec.ru/en/news/4514817
  • 63. Mobile Phone Manufacturers are Highly Vertically Disintegrated (Apple designs processors, but outsources all manufacturing)
  • 64. Google’s Latest Strategy Google’s Project Ara Google defines the exoskeleton (including the APIs) and users create their own phones Users can mix and match modules, and replace them over time
  • 65. Batteries The Big Battle is to Connect Content with Users Phone Manufacturers Displays Interface defined by air-interface standards such as GSM and CDMA Chips Software Service Providers Base Stations Switching Equipment Network Software Retail Customer Content Portals or Search Engines
  • 66. New Eco-Systems Emerged Around Apple’s iOS and Android  Mostly in the form of apps  Thousands of apps are available  Why are apps better than accessing service provider’s menu or searching with Google?  The better value proposition of Apps caused competition to revolve around them, including network effects  How strong are the network effects with Apps?  And who is winning?
  • 67. Google Play Now Offers More Apps than Does iOS
  • 68. And it Has More Downloads  Android’s Google Play Store generated nearly 60% more app downloads than Apple’s iOS App Store (60% more)  And this doesn’t include sales from Amazon and Samsung stores  Most downloads  Games: Candy Crush Saga  Non-games: Facebook messenger. Facebook app, Whats App, Instagram, Skype  But revenues are a different story http://www.theguardian.com/technology/2015/jan/28/android-ios-app-downloads-revenues-app-annie-google-play-app-store
  • 69. More App Revenues for Apple  App Store generated more than 70% more revenues than Google Play  Apple paid $10 Billion to iOS developers in 2014, suggesting Google Play paid $3 Billion to developers  Payouts to developers represent 70% of App Revenues for Apple http://www.theguardian.com/technology/2015/jan/28/andr oid-ios-app-downloads-revenues-app-annie-google-play- app-store
  • 70. The UpShot  Very vertically disintegrated system in mobile phone industry  But Apple is generating huge profits through managing eco-system  How much from design?  How much from apps and network effects from apps?  Other phone suppliers have also created large eco- systems  Xiaomi uses light asset model, even lighter than Apple  No ownership of retail stores, sells most phones online, making them cheaper than unsubsidized phones obtained through service providers  Trying to export model to other countries
  • 71. Conclusions (1)  Most industries are highly vertically disintegrated  This enables many firms to co-exist  Reasons for this vertical disintegration include  More open standards  More electronics that facilitate standards and open standards  High development cost for electronics and software  Emergence of open standards and other changes (such as political and regulatory changes)  can reduce transaction costs and  thus enable vertical disintegration  A new scope of activities  represents a new business model and  it may require changes to other elements of the business model
  • 72. Conclusions (2)  Vertical disintegration, which enables a different scope of activities, provides challenges for incumbents  reduces barriers to entry, and thus facilitates new entry  makes new methods of value capture possible  Vertical disintegration will likely emerge in new industries  Internet of Things  Wearable Computing  Firms should expect this vertical disintegration to emerge and plan your business model around it