The document discusses business models for the hyperconnected world. It introduces concepts like microeconomics of traditional goods, shared goods, and incentives. The key lessons are that to conquer entire markets, one must share something valuable with a large group for free, and to succeed in mobile, one must incentivize customers. It also discusses theories about what types of goods to sell versus share, including public/private goods and complementary goods theories. The goal is to learn how billion-dollar companies operate and apply these rules to new ventures.

1. The Billion Business Model Course By Marcelo Honores

2. " Ignore basic economic principles at your own risk. Technology changes. Economic laws do not." Carl Shapiro and Hal R. Varian in Information Rules

3. Agenda Introduction How to conquer entire markets in the hyperconnected world What to sell and what to share in the hyperconnected world How to create eternal loyalty through customer communities Creating value with partners through business ecosystems Using Information and Communication Technologies to build the Infraestructure of Cooperation The Billion Business Model

4. Agenda Introduction How to conquer entire markets in the hyperconnected world What to sell and what to share in the hyperconnected world How to create eternal loyalty through customer communities Creating value with partners through business ecosystems Using Information and Communication Technologies to build the Infraestructure of Cooperation The Billion Business Model

5. Did you know? 2004, Google got US$ 23 billion in its IPO 2005, eBay Inc. acquired Skype Technologies for US$ 2.6 billion 2006, Google bought Youtube for US$ 1.65 billion 2007, Microsoft bought shares in Facebook for US$ 240 million (Facebook has a market value of US$ 15 billion) 2008, Microsoft offered US$ 48 billion for Yahoo Etc, etc, etc.

6. Did you know? In the last 10 years there were more than 1,150 web 2.0 acquisitions for around US$ 30 billion (strategy & business magazine)

7. Did you know that?

8. Can we learn something from them? What can we (the mere mortals) learn from them? Why are they so valuable? What they have in common? Are there any rules behind scenes? Can I apply these rules in a new venture?

9. The answer is yes

10. First lesson

11. The long tail

12. The long tail US$ 3.2 billion US$ 250 billion

13. Agenda Introduction How to conquer entire markets in the hyperconnected world What to sell and what to share in the hyperconnected world How to create eternal loyalty through customer communities Creating value with partners through business ecosystems Using Information and Communication Technologies to build the Infraestructure of Cooperation The Billion Business Model

14. How to conquer entire markets in Internet To know how to conquer entire markets in Internet, you need to review the microeconomics theory Microeconomics 101 Microeconomics of traditional goods (the past) Microeconomics of shared goods (the present) Microeconomics of incentives (the future) Warning!!! This part can be painful

15. Microeconomics of traditional goods (the past) You pay and receive a good or service simultaneously Price Quantity Supply Demand P1 Q1

16. Microeconomics of traditional goods (the past) Observations: Price = P1 (Price > 0) Quantity = Q1 Benefits of the Consumer = Green area Benefits of the Producer = Yellow area Typical for physical goods Price Quantity Supply Demand P1 Q1

17. Microeconomics of traditional goods (examples) www.dell.com www.travelocity.com www. jcpenney .com

18. Microeconomics of shared goods (the present) You receive a free good in internet, such as: free search engine service, free calls from PC to PC, free social networking, etc. Price Quantity Demand P2 Q2

19. Microeconomics of shared goods (the present) Observations : Price = P2 (Price = 0) Quantity = Q2 Benefits of the Consumer = Green area Benefits of the Producer = 0 Typical for digital goods Price Quantity Demand P2 Q2

20. Microeconomics of shared goods (examples) www.wikipedia.org www.google.com www.skype.com

21. Microeconomics of incentives (the future) You receive an incentive in a social currency such as: ringtones, music, videos, minutes of calling, text messaging, SMS, etc. for using or buying a good, mainly advertising Price Quantity Demand P3 Q3 0

22. Microeconomics of incentives (the future) Observations: Price = P3 (Price < 0) Quantity = Q3 Benefits of the Consumer = Green area Benefits of the Producer = 0 Will be typical in the mobile world Price Quantity Demand P3 Q3 0

23. Microeconomics of incentives (examples) search.live.com/cashback www.virginmobileusa.com/stuff/sugarmama.do Incentives is a new business model. This model will be used widely in the mobile world. Free ringtones, music, videos, minutes of calling, text messaging, SMS, etc. for watching advertising www.yourexample.com

24. Microeconomics 101 Conclusions Microeconomic of traditional goods (web 1.0) Price = P1 (price > 0) Quantity = Q1 Shared benefits between consumers and producers Typical in the physical world Microeconomic of shared goods (web 2.0) Price = P2 (price = 0) Quantity = Q2 (Q2 > Q1) Consumer gets all the benefits Typical in the internet world Microeconomic of incentives (web 3.0?) Price = P3 (price < 0) Quantity = Q3 (Q3 > Q2 > Q1) Consumer gets all the benefits Will be typical in the mobile world

25. Microeconomics 101 Conclusions If you share something you will get the maximum demand If you share something the consumer will get all the benefits Therefore to conquer the entire markets in the Internet world you must to share something valuble for a large group If you want to conquer the entire markets in the mobile world you must incentivize your customers Don´t worry about free riders In the hiperconnected world free riders are welcomed

26. In the hyper-connected world free riders are welcomed!!!

27. Agenda Introduction How to conquer entire markets in the hyperconnected world What to sell and what to share in the hyperconnected world How to create eternal loyalty through customer communities Creating value with partners through business ecosystems Using Information and Communication Technologies to build the Infraestructure of Cooperation The Billion Business Model

28. What to sell and what to share in the hyperconnected world To know what to sell and what to share in the hyperconnected world, you should be aware of the economic properties of the goods: The Public-Private goods theory The complementary goods theory Warning!!! This part can be boring

29. Public and private goods theory Definition : “ In economics, a public good is a good that is non-rivalry and non-excludable ” No-rivalry The consumption of one good by one individual does not reduce its availability for others consumption. In other words: it is not scarce . No-excludability . One good cannot be effectively excluded from consumption of one good. In other words: you cannot control its distribution or consumption.

30. Examples of rivalness Non-rivalry goods Goods never run out ( not scarce ) Examples: The fact that one use a search engine does not reduce its availability The fact that one watch an online video does not reduce its availability It is a typical attribute of digital goods Rivalry goods Goods can run out ( scarce ) Examples: The fact of installing a software in a computer with a license key prevents to installing in an other computer (artificial rivalry) The sales of theatre tickets online is a signal of rivalry It is a typical attribute of physical goods

31. Examples of Excludability Non-excludability Difficult control of distribution or consumption Examples: The tragedy of the commons (pastures) Digital goods are easily reproducible so almost imposible to exclude Excludability Easy control of distribution or consumption Examples Physical goods in a market are easyly to control by their owners Accessing a website password protected is an example of excludability

32. Type of goods acording the Public and private goods theory Public goods Collective goods Non-Scarce Common goods / (Common-pool resources) Private goods Scarce Non- Controlable Controlable Type of goods

33. Private goods Public goods Collective goods Non-Scarce Common goods / (Common-pool resources) Private goods Scarce Non- Controlable Controlable Type of goods

34. Private goods They are scarce and the producer can control their distribution and consumption Almost any physical good In Internet: password protected services In software: Software with license key

35. Private goods (examples) www. microsoft .com www.dell.com www.travelocity.com

36. Common goods / Common-pool resources Public goods Collective goods Non-Scarce Common goods / (Common-pool resources) Private goods Scarce Non- Controlable Controlable Type of goods

37. Common goods / Common-pool resources They are scarce and the producer cannot control their distribution and consumption Commons goods The planet earth (global warming), water, pastures, etc In Internet: website hosting Typically hard disk and bandwith

38. Common goods / Common-pool resources example

39. Collective goods Public goods Collective goods Non-Scarce Common goods / (Common-pool resources) Private goods Scarce Non- Controlable Controlable Type of goods

40. Collective goods They are not scarce but the producer can control their distribution and consumption They also are known as artificially scarce goods Examples: In the real world Clubs, cinemas, music concerts, theatres, stadiums In the hiperconneted world Copyrighted goods DRM goods Patents Commercial software “ Walled garden” communities or social networks Premium/platinum services

41. Collective goods (examples) iTunes Store www.aol.com www.diamondlounge.com

42. Public goods Public goods Collective goods Non-Scarce Common goods / (Common-pool resources) Private goods Scarce Non- Controlable Controlable Type of goods

43. Public goods They are not scarce and the producer can not control the distribution or consumption In the physical world The beach, national security, city lighting, parks, etc. Examples: Information in general Digital goods (PDFs, MP3s, GIFs, etc.) Wikipedia Google Yooutube, Flickr (in part) MySpace, Facebook, and free available social networks Napster, (in the past), kaaza, P2P in general Etc.

44. Public goods Examples www.facebook.com www.wikipedia.org www.google.com

45. The complementary goods theory Complementary goods: Those directly related, if the consumption of one good raises, the consumption of the related one raises too (not ncesarily the inverse is true) Example Milk and coffee and bread Substitute goods: Those inversely related. if the consumption of one good raises, the consumption of the sustituted one lowers (not ncesarily the inverse is true) Example Gasoil with ethanol

46. The complementary goods theory (examples)

47. Google: free search engine

48. Google has around 127 million users per month

49. Google sells advertising Are searching and advertising good complementors?

50. Google sold US$ 16 billion past year

51. Skype: free calls pc to pc

52. Skype has around 10 million users per day

53. Skype sells paid calls pc to phone Are free calls (pc to pc) and paid calls (pc to real phones) good complementors?

54. www.ipdemocracy.com Skype sold almost US$ 400 million past year

55. Monster: free job searching

56. Monster has around 20 million visits per month

57. Monster is paid for employers Are free job searching and paid job posting good complementors?

58. Monster sold around US$ one billion past year

59. What to sell and what to share in the hyperconnected world (conclusions) Share Public good Discriminate price (part free/part paid) Commons Sell Collective Sell Private Strategy What type of good is your offfering?

60. What to sell and what to share in the hyperconnected world (conclusions) You can try also: Turn private goods into public or commons goods (or viceversa) Turn collective goods into public (or viceversa) Share when your business model is not clear Make flexible your copyrighted property. Uuse creative commons licensing instead Share something and sell their complementary goods

61. Agenda Introduction How to conquer entire markets in the hyperconnected world What to sell and what to share in the hyperconnected world How to create eternal loyalty through customer communities Creating value with partners through business ecosystems Using Information and Communication Technologies to build the Infraestructure of Cooperation The Billion Business Model

62. How to create eternal loyalty through customer communities

63. Community is about value flow , not necesarily money Customer community members help to increase sales because: They tend to repeat purchases in online businesses They attract new customers via “word of mouth” There is an emotional link rhater than commerical one Customer community members help to decrease costs because: Reciprocity in helping each other reduces technical support costs and improves the consumption experience Having communities around products and services engourage innovation Strong communities make more valuable your offering The full restaurant effect How to create eternal loyalty through customer communities

64. How to create eternal loyalty through customer communities In my opinion community marketing is superior than other Internet Marketings techniques SEO, SEM, Adwords and Adsense depends on the mood of Google Spam is annoying Affiliate marketing sucks People don’t trust Advertising More fidelity Word of mouth Viral marketing Emotional link It is about value not money Long term relationship Other Internet Marketing Community Marketing

65. How to create eternal loyalty through customer communities Average users per month - myspace.com 60 million - facebook.com 40 million - linkedin.com 7 million

66. How to create eternal loyalty through customer communities Examples IBM academic initiative MICROSOFT: Betatesting program Free training material and software for cumputer science professors The voluntary beta testing program saves Microsoft around US$ 500 million yearly in software testing

67. How to create eternal loyalty through customer communities Examples SAP encourage participation of the community using several rewarding programs

68. How to create eternal loyalty through customer communities Examples Communities in politics

69. Strategies Wrap your offerings with communities or social networks Create a social currency Youtube-videos, Flickr-photos, Blogger-blogs, etc. Encourage participation and WOM, through: Blogs, forums, reviews, ratings, social networking, etc. Look for volunteerism , not all should be about money Reward the most active participants Do not discriminate , it allows access to customers and non-customers Encourage social innovation: we are smarter than me How to create eternal loyalty through customer communities

70. Agenda Introduction How to conquer entire markets in the hyperconnected world What to sell and what to share in the hyperconnected world How to create eternal loyalty through customer communities Creating value with partners through business ecosystems Using Information and Communication Technologies to build the Infraestructure of Cooperation The Billion Business Model

71. Creating value with partners through business ecosystems

72. Do you remember Porter’s value chain? Creating value with partners through business ecosystems Primary Activities Support Activities Margin Margin Inbound Logistics Operations Outbound Logistics Marketing & Sales Service Procurement Technology Development Human Resources Firm Infrastructure Cost Profit = $ Price (Customer Perceived Value) +

73. Forget it and use the value network Creating value with partners through business ecosystems

74. Remember the Porter´s five forces ? Creating value with partners through business ecosystems Threat of new competitors entry of new substitutes Supplier negotiation power Customer negotiation power Rivalry among competitors

75. Forget it and use the value network Creating value with partners through business ecosystems Cooperation with Competitors Cooperation with Complementors Cooperation with Suppliers Cooperation with Clients Company * Branderburger & Nalebuff

76. Remember Twentieth century was about competition , Twenty-first century is about cooperation Creating value with partners through business ecosystems

77. Strategies: Ecosystem in business is about flow of money Allow others make money in your website Open the doors of your site to clients, suppliers, complementors Encourage the selling of complementaring goods Charge a commision Evaluate the selling of competitors goods Democratize innovation The bigger the ecosystem the more the chances of cross selling If you are small join to a bigger ecosystem Creating value with partners through business ecosystems

78. Creating value with partners through business ecosystems Examples www.ebay.com www.amazon.com

79. Creating value with partners through business ecosystems Examples SAP ecosystem and partner programs NTT – Docomo i-Mode ecosystem

80. Agenda Introduction How to conquer entire markets in the hyperconnected world What to sell and what to share in the hyperconnected world How to create eternal loyalty through customer communities Creating value with partners through business ecosystems Using Information and Communication Technologies to build the Infraestructure of Cooperation The Billion Business Model

81. Using ICT to build the Infraestructure of Cooperation

82. The infrastructure of cooperation: It is the web site It is where everything happens For sharing your free good For selling your paid good For the community For open innovation For the ecosystem (the others selling their goods) Using ICT to build the Infraestructure of Cooperation

83. Use technologies of cooperation creatively Using ICT to build the Infraestructure of Cooperation Cooperation tools for people Cooperation tools for companies

84. Be beta Using ICT to build the Infraestructure of Cooperation

85. Remember Ian Roughley Simplicity over Completeness Long Tail over Mass Audience Share over Protect Advertise over Subscribe Syndication over Stickiness Early Availability over Correctness Select by Crowd over Editor Honest Voice over Corporate Speak Participation over Publishing Community over Product Using ICT to build the Infraestructure of Cooperation

86. Strategies Create incomplete architectures /products/services Encoureges user generated content (co-creation) Be mashable Be mobile Be social SAS: software as service SOA: service oriented architecture Use Ajax Hire good programmers Using ICT to build the Infraestructure of Cooperation

87. Using ICT to build the Infraestructure of Cooperation Examples

88. Examples of Infraestructure of Cooperation Example of application of amazon web services www.amazon.com www.liveplasma.com

89. Examples of Infraestructure of Cooperation www.myspace.com www.facebook.com

90. Examples of Infraestructure of Cooperation www.secondlife.com kuler.adobe.com

91. 1 Share something 2 Sell something 3 Build a community Billion Dollar Business 5 Build an infra. of cooperation 4 Build an ecosystem 6 Use ICT creatively The Billion Business Model

92. Exam

93. Question How to conquer entire markets in the hyperconnected world? What to sell and what to share in the hyperconnected world? How to create eternal loyalty through customer communities? How to creating value with partners ? How to use creatively the ICT to build the Infraestructure of Cooperation ?

94. 1 Share something 2 Sell something 3 Build a community Billion Dollar Business 5 Build an infra. of cooperation 4 Build an ecosystem 6 Use ICT creatively The Billion Business Model Answer

95. Question How to conquer entire markets in the hyperconnected world? What to sell and what to share in the hyperconnected world? How to create eternal loyalty through customer communities? How to creating value with partners? How to use creatively the ICT to build the Infraestructure of Cooperation ?

96. What to sell and what to share in the hyperconnected world (conclusions) Answer Share Public good Discriminate price (part free/part paid) Commons Sell Collective Sell Private Strategy What type of good is your offfering?

97. Question How to conquer entire markets in the hyperconnected world? What to sell and what to share in the hyperconnected world? How to create eternal loyalty through customer communities? How to creating value with partners? How to use creatively the ICT to build the Infraestructure of Cooperation ?

98. 1 Share something 2 Sell something 3 Build a community Billion Dollar Business 5 Build an infra. of cooperation 4 Build an ecosystem 6 Use ICT creatively The Billion Business Model Answer

99. Question How to conquer entire markets in the hyperconnected world? What to sell and what to share in the hyperconnected world? How to create eternal loyalty through customer communities? How to creating value with partners ? How to use creatively the ICT to build the Infraestructure of Cooperation ?

100. 1 Share something 2 Sell something 3 Build a community Billion Dollar Business 5 Build an infra. of cooperation 4 Build an ecosystem 6 Use ICT creatively The Billion Business Model Answer

101. Question How to conquer entire markets in the hyperconnected world? What to sell and what to share in the hyperconnected world? How to create eternal loyalty through customer communities? How to creating value with partners ? How to use creatively the ICT to build the Infraestructure of Cooperation ?

102. Use social technologies Answer

103. Common mistakes of web 2.0 entrepreneurs Sharing something without selling anything Selling something without sharing anything Building a community without allowing the selling of related items Building an ecosystem without allowing spontaneous cooperation Not using Information Technology in creative ways

104. Cooperate without being a saint Compete w/o killing the competition (Branderburger & Nalebuff)

105. Thanks for sharing Howard Rheingold and Andrea Saveri (www.cooperationcommons.com) Brandenburger and Nalebuff (mayet.som.yale.edu/coopetition) Don Tapscott (www.wikinomics.com) Carl Shapiro and Hal Varian (www.inforules.com) www.wikimedia.org www.webshotspro.com finance.yahoo.com www.strategy-business.com www.compete.com

106. Still need more help?

107. Need training? - Wanna the explanation of this course? Need consulting? - Wanna turn your business into billionaire one Need implementation? Have great ideas but lack of technical skills? Contact me! - Also send opinions and critics Still need more help?

108. Marcelo Honores Economist Master in E-Busienss 15 years of experience in IT [email_address] marcelo-honores.blogspot.com www.linkedin.com/in/mhonores Not billionaire yet Looking for partners!!!