Business Models

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

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

Published in: Business, Technology

Business Models

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

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