Lecture and exercises for course on e-business models to business informatics students.

1. Ian Miles Research Laboratory for the Economics of Innovation, HSE (and Manchester Institute of Innovation Research) December 2011 e - Business and e - Business Models – Part 2 [ « Business and business models in the Internet »]

4. Business Model is NOT a Business Plan Business Plan Written down on paper to convince investors: a SELLING job [though preparing this can be very instructive] Formalised (one looks much like another): a set of guesses about opportunities and risks, with justifications where possible. Justifies action by providing an account of how business and its markets should evolve. Criterion: Does it sell the firm to investors?

8. * This terminology from Steve Blank, who has good presentations at http:// www.steveblank.com Business Plan versus Business Model Business Plan Business Model Written down on paper to convince investors: a SELLING job [though preparing this can be very instructive] May be partly written [e.g. For visualisation], but largely tacit and shared mental model to coordinate partners Formalised (one looks much like another): a set of guesses about opportunities and risks, with justifications where possible. Appraisal of how different “building blocks” can be aligned, under what circumstances.* Justifies action by providing an account of how business and its markets should evolve. Prompts analysis of where actions are required to fulfil (or modify) ambitions. Criterion: Does it sell the firm to investors? Criterion: Does it guide action effectively, and can it be revised when needed?

9. What benefits are we delivering? How are they made available to our consumers/clients? How are we creating them? Who is helping us create them? What are the resources and capabilities we need to do these things? How are we balancing the books and making a profit? A series of points where we need to take action, to monitor developments, to appraise competitors, customers, partners…                Business Plan is NOT a Business Model Business Plan Business Model Written down on paper to convince investors: a SELLING job [though preparing this can be very instructive] May be partly written [e.g. For visualisation], but largely tacit and shared mental model to coordinate partners Formalised (one looks much like another): a set of guesses about opportunities and risks, with justifications where possible. Appraisal of how different “building blocks” can be aligned, under what circumstances.* Justifies action by providing an account of how business and its markets should evolve. Prompts analysis of where actions are required to fulfil (or modify) ambitions. Does it sell the firm to investors? Does it guide action effectively, and can it be revised when needed?

12. Much advice and support online (usually for a fee)

13. “ Business Model Generation” http://www.businessmodelgeneration.com/ Alexander Osterwalder WHAT? WHO? HOW? WHY?

14. Business Basics Goods and services Payment I’m inspired by the work of a doctoral student, Liting Liang (DPhil thesis 2011) – She studied Chinese low-cost airlines as examples of innovation in business models. Business Customers

15. Business Relationships Goods and services Payment Customer Relationships: Communications (Marketing) Research and Intelligence Business Customers

16. Business Processes Goods and services Payment Customer Relationships: Communications (Marketing) Research and Intelligence How are these managed? How is this organised? How are these delivered? Business Customers

17. Business Dynamics Goods and services Payment Customer Relationships: Communications (Marketing) Research and Intelligence How are these managed? How is this organised? How are these delivered? How are these produced? Capabilities and Resources Activities Costs Profits Business Customers

18. Business Partnerships Goods and services Payment Customer Relationships: Communications (Marketing) Research and Intelligence How are these managed? How is this organised? How are these delivered? How are these produced? Capabilities and Resources Activities Costs Profits Value Chains Channels Customer to Customer What are (potential) competitors doing and planning? Business Customers Business Partners

19. Business Model Elements What are (potential) competitors doing and planning? Customer to Customer Goods and services Payment Customer Relationships: Communications (Marketing) Research and Intelligence How are these managed? How is this organised? How are these delivered? How are these produced? Capabilities and Resources Activities Costs Profits Value Chains Channels ECONOMIC FORMULA VALUE PROPOSITION RESOURCES AND CAPABILITIES REVENUE MODEL COST STRUCTURE VALUE NETWORK VALUE CHAIN STRUCTURE NETWORK POSITION MARKET REACH TARGET MARKETS CHANNELS, FULFILMENT “ Building blocks” need to be aligned, though tension can be creative Business Customers Business Partners

20. Behind the Business Model VISION Customer to Customer Goods and services Payment Customer Relationships: Communications (Marketing) Research and Intelligence How are these managed? How is this organised? How are these delivered? How are these produced? Capabilities and Resources Activities Costs Profits Value Chains Channels ECONOMIC FORMULA VALUE PROPOSITION RESOURCES AND CAPABILITIES REVENUE MODEL COST STRUCTURE VALUE NETWORK VALUE CHAIN STRUCTURE NETWORK POSITION MARKET REACH TARGET MARKETS CHANNELS, FULFILMENT Business Customers Business Partners

21. Behind the Business Model Customer to Customer Goods and services Payment Customer Relationships: Communications (Marketing) Research and Intelligence How are these managed? How is this organised? How are these delivered? How are these produced? Capabilities and Resources Activities Costs Profits Value Chains Channels ECONOMIC FORMULA VALUE PROPOSITION RESOURCES AND CAPABILITIES REVENUE MODEL COST STRUCTURE VALUE NETWORK VALUE CHAIN STRUCTURE NETWORK POSITION MARKET REACH TARGET MARKETS CHANNELS, FULFILMENT VISION Business Customers Business Partners

24. Exploring the Business Model VISION ECONOMIC FORMULA VALUE PROPOSITION RESOURCES AND CAPABILITIES REVENUE MODEL COST STRUCTURE VALUE NETWORK VALUE CHAIN STRUCTURE NETWORK POSITION MARKET REACH TARGET MARKETS CHANNELS, FULFILMENT

25. Organisational Vision Definition : Strategic intent - what the desired future of the firm will be, what opportunities are to be seized (the business model should flow from this). Example : To be the leading source of news/gossip/reviews... E-Business : To be the leading online portal for news/gossip/reviews... A new vision of what the rules of the game could be. Note that this definition is from the supplier side, and does NOT explicitly take into account customer resources, co-creation of value and the like. VISION Elements of an (e)Business Model - Vision

28. Results

29. Elements of an (e)Business Model – Value Proposition Value Proposition Definition : What benefits offered to the consumer, at what price and conditions. Example: Books; sold at shop; can examine there; can keep and share them. eBusiness : e-books; copying/sharing may be restricted; available online anywhere; need a reader. New services, new delivery mechanisms, new prices, new service/price combinations (e.g. “no frills”). [scope for “blue ocean strategy”?] VALUE PROPOSITION TARGET MARKETS

31. Porter on Strategy: Price/Quality Choice BETTER Differentiation strategy QUALITY BETTER PRICE (for customers) “ Rip off”: overcharging shouldn’t work in competitive, informed markets Fantastic value: may require mastery of a disruptive innovation Premium services: may work well with demanding/ status-oriented / money rich time poor consumers Budget services: often where disruptive innovation begins, but may also be aimed at low-income niches What space for intermediate value offerings? Whose choice: yours or consumers? Note that the customers’ perceptions of price and quality may differ from yours! Their perceptions are the ones that count. You may have a range of price/quality offerings – and you may have dynamic pricing of some sort. Cost leadership strategy

32. Ansoff on Strategy: Broadening vs Deepening EXISTING MARKETS NEW MARKETS EXISTING PRODUCTS NEW PRODUCTS Further market penetration , enhancing loyalty and decreasing churn, increasing frequency of transactions “ Diversification ” or Disruptive Innovation Creating or expanding into new markets – market development Product development : e.g. complementary products, new services What space for intermediate strategies? Ansoff Andrews Turning customers on to novelty We could also think of niches versus mass markets, rare versus frequent users, etc.

34. Results

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