The document discusses different types of business models that can be used in the network economy. It begins by explaining that while old economy businesses focused on what business they were in, new network economy businesses must focus on their business model. It then defines the key components of a business model as the business concept, capabilities, and value returned to stakeholders. The document goes on to classify different types of business models, including producers, distributors, and portals. It distinguishes focused distributors based on whether they assume inventory control and complete transactions. It also outlines infrastructure-based business models like infrastructure producers and distributors. In the end, it discusses approaches for evolving business models like expanding, enhancing, extending or exiting areas of the

1. Crafting Business Models

2.  GHULAM MUHAMMAD
AHMED SHAH
NOOR ULLAH DAAVI
RABEEL TARIQ BASHER
EHSANULLAH
Group Member Names

3. Crafting the Network Economy Business Model
• Old economy question
– What business am I in?
• New network economy question
– What is my business model?
• Emerging networked technology enable us to create new
business model and redefine existing ones.
– IT can provide flexible channel for procuring and distributing
products and services
– As well as the tools to create and package content in all its many
forms
– Data, voice, video

4. Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan, Corporate Information Strategy and Management. Burr Ridge, IL:
Components of a Business Model

5. Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan, Corporate Information Strategy and Management. Burr Ridge, IL:
McGraw-Hill/Irwin, 2002. Chapter 2 Figure 2-1
Components of a Business Model (continued)
What is it? How will we?
An organization's business
concept defines its strategy.
The concept is based on
analysis of:
 Market opportunity
 Product and services offered
 Competitive dynamics
 Strategy for capturing a
dominant position
 Strategic options for evolving
the business
 Attract a large and loyal
community?
 Deliver value to all community
members?
 Price our product to achieve rapid
adoption?
 Become #1 or #2?
 Evolve the business to "cash in on
strategic options"?
 Generate multiple revenue streams?
 Erect barriers to entry?
 Manage risk and growth?

6. Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan, Corporate Information Strategy and Management. Burr Ridge, IL:
McGraw-Hill/Irwin, 2002. Chapter 2 Figure 2-1
Components of a Business Model (continued)
What is it? How will we?
An organization's
capabilities define resources
needed to execute strategy.
Capabilities are built and
delivered through its:
 People and partners
 Organization and culture
 Operations
 Marketing/ sales
 Leadership/ Management
process
 Business
development/ Innovation
process
 Infrastructure/ Asset
efficiency
 Achieve best-in-class operating
performance?
 Develop modular, scalable, and
flexible infrastructure?
 Build and manage strong
partnerships with employees and
the community?
 Increase the lifetime value of all
members of the community?
 Build, nurture, and exploit
knowledge assets?
 Make informed decisions and take
actions that increase value?
 Organize for action and agility?

7. Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan, Corporate Information Strategy and Management. Burr Ridge, IL:
McGraw-Hill/Irwin, 2002. Chapter 2 Figure 2-1
Components of a Business Model (continued)
What is it? How will we?
A high-performing
organization returns value to
all stakeholders. This value is
measured by:
 Benefits returned to all
stakeholders
 Benefits returned to the
firm and its owners
 Market share and
performance
 Brand and reputation
 Financial performance
 Deliver value to all stakeholders?
 Claim value from stakeholder
relationships and transactions?
 Increase market share and drive
new revenues off existing
customers?
 Increase brand value and
reputation?
 Generate confidence and trust?
 Ensure strong growth in earnings?
 Generate positive equity cash flow?
 Increase stock price and market
value?

8. Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan, Corporate Information Strategy and Management. Burr Ridge, IL:
McGraw-Hill/Irwin, 2002. Chapter 2 Figure 2-2
Linking Strategy to Value

9. Classifying the Business Models
• Producers
– Design and build products and services that customer or market
needs
• May sell, service, and support the product
• Distributors
– Enable buyers and sellers to connect, communicate, and transact
business.
• May assume control of inventory and resell a product, solution or
service (retailers, wholesalers).
• May simply act as agents, connecting buyers and suppliers but no
assuming control of inventory (aggregators, marketplaces, and
exchanges).

10. Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan, Corporate Information Strategy and Management. Burr Ridge, IL: McGraw-Hill/Irwin, 2002.
Chapter 2 Figure 2-3
Classifying Network Business Models

11. Classifying the Business Models
• Business Built on Networked Infrastructure
– Focused distributors
– Portals
– Producers
• Business That provide networked Infrastructure
– Infrastructure distributor
– Infrastructure Portals
– Infrastructure Producers

12. Business Built on a Networked Infrastructure
• Focus Distributor
– Provide products and services related to a
specific industry or market niche
• E.g. InsWeb and E-Loan as focused distributors
offering products and services within the financial
services industry.
• Staples.com was a focused distributor for office
products and suppliers.

13. Classifying the Business Models
• Five type of focused distributors business model
– Retailer
– Marketplace
– Aggregator
– Exchange
– Infomediaries

14. Classifying the Business Models
• These five types can differentiated by asking the
following questions
– Does the business assume control of inventory?
– Does the business sell online?
– Is the price set outside the market, or is online
price negotiation and bidding permitted?
– Is there a physical product or service that must
be distributed?

15. Classifying the Business Models
• Focus Distributors: Retailers
– E.g. ToysRus and Staples.com
• Assume control of inventory, set a nonnegotiable
price to the consumer, and sell physical products
online.
• The primary revenue model is based on
product/service sales,
• The cost model includes procurement, inventory
management, order fulfillment, and customer
service.

16. Classifying the Business Models
• Focus Distributors: Marketplaces
– E.g. E-Loan and InsWeb
• Sell products and services but do not take control of the
physical inventory.
• Sell products with a nonnegotiable price and complete sales
online.
• The revenue model is based on a commission or transaction
fee for sale.
• Usually e-link to supplier databases and transaction systems
to ensure that transactions can be completed and revenue
can be recognized.

17. Classifying the Business Models
• Focus Distributors: Aggregators
– E.g. Autoweb
• Provide information on products or services for sale
by others in the channel.
• Allow a comparison of features and pricing but do
not enable buyers and sellers to complete the final
transaction
• The revenue model is based on referral fees and
advertising

18. Classifying the Business Models
• Focus Distributors: Infomediaries
– Internet Securities
• Special type of aggregators that unites sellers and
buyers of information-based products, such as news,
weather, sports, and financial information.
• Transaction can be completed online because no
physical product is involved
• Revenue model include subscription fee, advertising

19. Classifying the Business Models
• Focus Distributors: Exchanges
– eBay and FreeMarket
• May or may not take control of inventory
• May not complete the final sales transaction online
• The key differentiating feature of this model is that the price is not set;
it is negotiated by the buyer and the seller at the time of the sale.
• The revenue, cost, and asset models vary depending on weather the
online exchange assumes control of inventory and completes the
transaction.
• B2B auction exchanges such as FreeMarket charge transaction fees
and supplement revenues with fees for consulting services.
• B2C and C2C exchanges often supplement transactions revenues with
advertising revenues

20. Classifying the Business Models
• Portals
– “Door way”
– Early Pre-Internet Portals
– American Hospital Supply’s ASAP
– AA Sabre
• Online consumer portals
– America Online
– CompuServe

21. Classifying the Business Models
• Types of Portals
– Horizontal
– Vertical
– Affinity

22. Classifying the Business Models
• The different types of portal can be differentiated by:
– Does the business provide gateway access to a full range of online
information and services, including search, calendar, e-mail, instant
messaging, chat, and other community-building tools
– Does the business provide access to deep content, products, and
services within a vertical industry (e.g. financial services, travel,
etc.)
– Does the business provide information and services for all types of
users, or are information and services specific to a well-defined
affiliation group (e.g. women, people selling or buying a home)

23. Classifying the Business Models
• Horizontal Portals
– Aol.com , Yahoo and Quicken.com
• Provide gateway access to the Internet’s vast store of content and
services.
• Provide a broad range of tools for locating information and websites,
communicating with others, and developing online communities of
interest.
• Revenue models
– Advertising
– Transaction fee from multiple vertical solutions channels.
– Strategic alliances with dial-up and broadband Internet service providers
(ISP)
• Cost includes development, maintenance, and operation of
infrastructure and content

24. Classifying the Business Models
• Vertical Portals
– E.g. Covisint and WebMD
• Provide deep content: a place to conduct business, learn,
and shop; communicates and community-building tools
• Often composed of a variety of business models, all of which
generate separate revenue streams.
– Advertising and referral fees if transactions are not completed
online
– Service fees and transaction fees may be generated if transactions
are completed online
– Subscription fees may also be generated for unique content

25. Classifying the Business Models
• Affinity Portals
– iVillage.com and Realtor.com
• Provide deep content, commerce, and community
features such as those found in vertical portal but
these offerings are targeted toward a specific market
segment.
• Some towards a specific gender
• The revenue model is similar to vertical portals, cost,
and asset models are based on business model
adopted by the portal

26. Classifying the Business Models
• Producers
– Producers design and make also may directly market, sell, and distribute
products, services, and solutions.
– Producers held the position of power in the traditional business market
– In contrast, the Internet and associated networked technologies of the
Network Economy create wealth by connecting buyers and suppliers.
– Many believed that distributors would become the dominant players in the
Network Economy.
• Gaining control of the distribution channel is a key success factor in the
today
• Producers are also thinking of taking steps to recapture the position of
power by forming coalitions with distributors
– Covisint in the automobile industry and Global Healthcare Exchange in the
health-care industry.

27. Classifying the Business Models
• Six categories of producers business model
– Manufacturer
– Service provider
– Educator
– Adviser
– Information and new service
– Producer portal

28. Classifying the Business Models
• Differentiating between producers
– Does the business sell physical products and/or
provide face-to-face services
– Does the business sell information-based products
and/or services
– Does the business provide customized products
and/or services

29. Producer Business Model
• Manufacturer
– Ford Motor Company and Procter & Gamble
• Design, produce and distribute physical products,
components and parts
• The Internet and associated networked technologies has
been used to streamline, integrate, coordinate, and control
physical channels of production and distribution.
• Often these IT-enabled process redesign efforts often begin
inside the organization and extend to connect customers,
suppliers, and partners.

30. Producer Business Model
• Service Providers
– American Express and Singapore Airlines
• Offer a wide range of services offerings that may be delivered through
multiple channels.
• Like manufactures of physical producer, service providers that offers
physical services (e.g. car rental agencies, restaurants, etc.) often use it
to streamline, integrate, coordinate, and control service delivery and to
connect and share information with customers, suppliers, and
partners.
• Service providers that offers primarily information-based services (e.g.
financial services) can use IT to digitize service delivery.

31. Producer Business Model
• Educator
– DePaul, Harvard, and Virtual Universities
• Create and deliver online educational programs, products, and
services.
• The ability to use the Internet and associate technologies to define
new multimedia educational offerings and to customize those
offerings to meet of individual and businesses is revolutionizing
education.
• Distance will never replace face-to-face class room education
offerings.

32. Producer Business Model
• Advisers
– McKinsey and Accenture
• Consulting and coaching services to business and individuals.
• Use online to extend the nature of the relationship with
customers from a one-time consulting project to an ongoing
education and advisory service.
• Online channels can used to disseminate knowledge,
connect consultants with their clients, and create
communities of interest.

33. Producer Business Model
• Information and News Services
– Dow Jones and Euromoney
• Create packages and deliver information through both online
and offline channels and across multiple media formats
• Because information in all its many forms can be digitized,
stored, and delivered to meet personalized needs, we
convergence among polishing, television, radio, and
information industries.

34. Producer Business Model
• Producer Portal
– Covisint and Global Healthcare Exchange
• Use the Internet and associated technologies to
support all aspects of the production and distribution
process

35. Value Chain Roles
Suppliers Producers Distributors Customers
Design & Build Connect
- Products - Buyers
- Services - Sellers

36. Businesses Built on Network Infrastructure
Business Models Characteristics
Suppliers Producers Distributors Customers
1) Producers 1) Focused Distributors
- Sell physical products or - Assume control of inventory?
provide face-to-face service?
- Sell online?
- Sell info based products or
services? - Online negotiation or bidding?
- Provide customized - Physical product or service?
products or services?
2) Portals
- Provide gateway access to full range
of online info & services?
- Provide access to deep content,
products and services within
vertical industry?
- Provide info and services to all
types of users?

37. Businesses Built on Network Infrastructure
Business Models
Suppliers Producers Distributors Customers
1) Producers 1) Focused Distributors
- Manufacturers - Retailer
- Service providers - Marketplace
- Educators - Aggregator
- Advisers - Infomediary
- Information & news - Exchange
service
2) Portals
- Producer portals
- Horizontal
- Vertical
- Affinity

38. Businesses Providing Network Infrastructure
Business Models Characteristics
Suppliers Producers Distributors Customers
1) Infrastructre Producers 1) Infrastructure Distributors
- Manufacture computer or network - Assume control of inventory?
components or equipment?
- Sell online?
- Develop packaged software?
- Online negotiation or bidding?
- Provide infrastructure
services or consulting? - Physical product or service?
2) Infrastructure Portals
- Provide "gateway access" to networks,
data centers, or web services?
- Host, operate, and maintain networks
data centers or web services?
- Provide access to hosted application
services?

39. Businesses Providing Network Infrastructure
Business Models
Suppliers Producers Distributors Customers
1) Infrastructure Producers 1) Infrastructure Distributors
- Equipment/ component - Infrastructure retailers
manufacurers
- Infrastructure market places
- Software firms
- Infrastructure aggregators
- Custom software and integration
service providers - Infrastrucure exchanges
- Infrastrucure services
2) Infrastructure Portals
- Horizontal infrastructure portals
- Vertical infrastruture portals

40. “Charles Schwab is a technology company that just happens to
be in the brokerage business. Everything we think about as we
run our business has technology in the center of it with the goal
of engineering cost down and service up…”
David Pottruck co-CEO of Charles Schwab

41. Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan, Corporate Information Strategy and Management. Burr Ridge, IL:
McGraw-Hill/Irwin, 2002. Chapter 2 Figure 2-4
Approaches to Business Model Evolution
Expand
Enhance
Extend
Exit
Enhance
Add functionality or features to current
product/service offerings or improve
performance of existing business
Expand
Add new product/service offerings
or enter new geographic markets
Extend
Enter new line of business and/or add new
business models
Exit
Exit a business or market or drop a
product/service offering