Digital business model Unit 1 for manaegrs

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Digital Business Models 2023-2024 Alejandro.depablo@esic.university fernando.soria@esic.university
Digital Business
Models
Alejandro de Pablo & Fernando Soria

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Digital Business Models
Subject Program
00. Subject Introduction. Week 1
01. What is a business Model?. Weeks 1 & 2
02. Special Features of Digital Business Models . Innovation of Business Models in the Digital Domain. Weeks 3,4 & 5
03. Innovation of Business Models in the Digital Domain. Weeks 5, 6 & 7
04. Main models. Analysis by sectors. Weeks 8, 9 & 10
05. The Collaborative Economy. Weeks 11 & 12
06. The Business Models of the Future. Weeks 12 & 13
Health check. Week 13
Teamworks assignment presentations. Weeks 14 & 15

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Digital Business Models
Subject Program
00. Subject Introduction. Week 1
01. What is a business Model?. Weeks 1 & 2
02. Special Features of Digital Business Models . Innovation of Business Models in the Digital Domain. Weeks 3,4 & 5
03. Innovation of Business Models in the Digital Domain. Weeks 5, 6 & 7
04. Main models. Analysis by sectors. Weeks 8, 9 & 10
05. The Collaborative Economy. Weeks 11 & 12
06. The Business Models of the Future. Weeks 12 & 13
Health check. Week 13
Teamworks assignment presentations. Weeks 14 & 15

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02. The Value Proposal
03. Technology as a disruptive lever of business models
04. Business Model Canvas applied to digital business models
UNIT 1
What is a Business model?
01. Main elements of a digital business model

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UNIT 1

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A business model describes the logic of how
the organization creates, delivers and
captures value.
A business model describes how a company
intends to make money.
Basic Definition
What is a business Model?

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Basic Definition
A business model is "Show me the
money / show me the money".
It is a simple expression of the
Company's strategy on how to make
money, without going into too many
details

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A business model IS NOTa business plan
• A business plan is a document
that describes how a project can
be implemented.
• A business plan usually aims to
sell the project because "you can
not have financing without a
business plan"

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What does a business plan usually incorporate?

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A business plan usually includes a description of ...
• The team
• The business model
• A financial analysis (for example, financial spreadsheets)
• An analysis of the business environment (for example, market,
competitors and competitive advantage analysis)
• A roadmap of how this plan will be implemented (eg, operation plan,
milestones)
• A risk analysis (for example, SWOT, critical success factors ..)
A business model IS NOT a business plan

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The strategy is the path for an action plan and
the allocation of the resources necessary to carry
out goals.

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• The strategy is a plan to differentiate the company
and give it a competitive advantage
• "Competitive strategy is about being different, it
means choosing deliberately a different set of activities
to offer a unique mix of value"? So decisions can only
be defined as strategic if they consciously involve
doing something "different" from competitors and if
that difference results in a sustainable advantage (For
example, making existing methods more efficient
("operational efficiency") are not strategic since they
can be easily copied by others)

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... describes what makes a company unique
Looking from the value propositions to the cost
structure

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Cost Value
A business model is an Ecosystem
Explanation beyond the key elements

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UNIT 1

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Traditional business models: trying to explain success with profit models
Adrian Slywotzky and David Morrison, The profit Zone, 1998

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Time
Profit
0
Profit zone
1. Customer solutions -
Invest to know the
customer, create a
solution, develop the
relationship. E.g. GE

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2. Product pyramid At the base are the products and services that are low price and
high volume; Products and services of first line High price and low volume Air France
Group
Profit
Profit zone
Price
Volume

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3. Multi-Component - Several of the components represent a disproportionate
share of the benefit - eg. Business seminars in Hotels, advertising (Google,?
Yahoo,? Facebook)
Basic
activity
Othercomponents
Profit zone

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4. Control panel Multiple vendors that communicate with multiple buyers. The more
buyers and sellers join the great The organization is based on itself EBay, Alibaba,
Amazon, Monster, Seloger Or the opposite: disintermediation (Dell) Seller's
buyers
Profit zone

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5. Time Gain - Take advantage of the uniqueness, the profit margins erode as the
competition seeks to imitate. Companies with time gains must take the lead and
maintain a "two year" advantage Their competitors E.g. Intel, Microsoft Unit
$/Unit
Price
Time
Profit zone

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6. Block Buster benefits The income made is so powerful and fast that in a quick
blow the model pays for development and commercialization E.g. movies, books,
pharma,teaching
Project type
$/Project
Profit zone

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7. Multiplier Strong customer brand Disney, Google
Different offers
Key asset

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Basic
activity
8. Business Profit Hierarchical design with multiple subsidiaries to maintain
closeness to the customer, Biotechnologies, Google Small equipment
Profit zone

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9. The specialization. Specialist is several times more profitable than the generalist.
Characterized by lower cost, higher quality, better reputation, shorter and better
sales cycles E.g. Deposit from home, Return
Specialists
Generalists
Profit zone

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10. Install the base The sales or initial benefits of the product are scarce and
benefits are obtained in the follow-up products and services Printers HP and
Gillette Razors, Ryanair Margin
Complementary
products
Basic
product
Profit zone

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11. Defacto Standard - The more players buy into the system, the more valuable the
network Microsoft, Oracle, Skype, Linkedin, Spotify,
Facebook
Margin
Profit zone

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12. Brand The Company spends an important marketing investment to raise
awareness and is reinforced by the customer experience. You know Brand is working
when a consumer says, "I'm not going to change because I trust AT & T. Google
Brand price
Average market price
Profit zone

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13. Specialty Specialized companies enjoy a higher premium for their products and
services until they "imitate” E.g. Merck, 3M, Photoshop
Marge
Nowadays
5 years ago
Common
Leading
Leading
Profit zone

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Local market share
14. Local Leadership Many businesses and their economies are totally local. The
risk occurs when these companies do not recognize that they are a local business
model Wal-Mart
Local return
0
Profit zone
Profit zone

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Transaction size
15. Step-scale transactions go up, but the cost to provide the transaction does not
increase so quickly Investment banking, real estate, transportation Return of
transactions
Profit zone

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16. Value chain
The specific activities go through a chain of Offer value Eg. Software, Intel
Profit zone
Profit zone

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Capacity / Occupancy
17. Benefit of the cycle. Industries characterized by a different and powerful cycle.
The company can not control the cycle, but works to maximize its position within the
gripping cycles. As the capacity tightens the companies, the increase in the prices of
lead, as the capacity loosens, its price of delay decreases. Dow Chemical, Toyota
Return per unit produced
Profit zone

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18. Profit after sale The profit of the company does not come directly from the sale
of your product, but the financing after the sale or the services of The product
General Electric, banking
After-sales offers
Basic offer
Profit zone

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19. Benefit of new products As new products are introduced, profit margins are
high and growth is rapid. As the product matures the profiit Fall of the margins
Time
Diffusion
Profit zone

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Relative market share
20. Relative Benefit of Participation in the Market Companies with high market
share tend to be more profitable. Large companies have price advantages due to
manufacturing experiences and volume economies, such as purchasing power and
economies of scale
Profit zone

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21. Benefit of the experience curve The experience reduces the transaction
cost
Cumulated experience
Unit cost
Profit zone

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22. Low Cost Business Design • The company strives to reduce the cost per
unit through "Accumulated Experience" Eg. Southwest Air, Dell, Internet as
a channel Distribution (fnac.com, ...)
Low cost
Profit zone

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http://www.expansion.com/directivos/2018/11/25/5bfae44922601dc9478b45a7.html

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UNIT 1

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BUSINESS MODELS BASED ON “DIGITAL”

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Why study Internet-based models?
Business
Models
Internet
A business model is an ecosystem

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Two reasons
The technological revolution exponentially increased the number of
profiles of business models
The marginal cost of digital information closer to nothing (= 0), Long tail
allows greater customer segmentation
A better asset rotation can allow new business to emerge generating more
margin.
After 30 years, we are better at understanding complex business models
A business model is an ecosystem

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https://www.ted.com/talks/ray_kurzweil_on_how_technology_will_transform_us?language=es#t-48427
Ray Kurzweil vídeo
sobre TED, 2005 La
aceleración de la
tecnología
14'00-19'10
(I) The technological revolution (IT, Internet…)

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• The great power of Silicon Valley's business models
is the fact that a small number of employees and
contracted partners can handle a huge and growing
volume of business:
• Duplication of transaction volume can be achieved
with relatively modest investments
* Software and servers do the heavy lifting
eBay Headquarters, San Jose California

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Sells successful products, but also hard-
to-find product niches (online bookstores offer
access to a wider variety of products)
The personalization of the client has allowed to sell a
large volume of products in small numbers
Amazon warehouse, somewhere

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Better asset rotation facilitates new business with low margin
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Formula : Return on Capital Employed (ROCE)
ROCE = Net Income (R) / Equity (K)
• The technological revolution increases the productivity of
capital, in parallel to the fall of immobilized capital

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Can you design new business models with the same performance as the most
profitable activities? Logan, the new low-cost vehicle, was designed to be sold
at € 5,000 (ultimately € 8,000 in France)

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• Developing countries are inventing
new business models in regions with
very low purchasing power where
populations are traditionally excluded
from any economic business model.
E.g. Tata vehicle costs € 2,500 even
cheaper than Logan
• 4 billion people live with less
than 1,500 US $ per year
C. K. Prahalad, The Fortune at the Botton of
the Pyramid, 2006

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Mobile banking case
Half of the population is not banked:
People without official financial service to save or borrow
Unofficial loan rates vary between 50% and 400% pa, microfinance rates are 20-40%
Morocco loses one day a month to pay bills
Allows massive tax evasion from States with low budgets
Increased cost and complexity for companies to pay their employees. Mobile banking offer is emerging in developing countries .
E.g. Half public civil service in Kenya is paid by mobile banking
Po l o g n e
R o y a u m e - U n i
France
Etats-Unis
C a n a d a
B e l g i q u
e
o tsw a n
a
P ort ug a
l Ir la nd e M o y. U E
Af r i q u e du S u d
J a m a ïqu e
Autriche Espagne Finlande
Danemark
Allemagne Pays-Bas
S u è d e
R u ss ie
R o u m a n i e
C h i l i
A l g é r i e Tunisie
Colombie
M o y . A f r i q u e B
M e x i q u e B r é s i
M a ro c
Guatemala l
Guyane
N i c a r a g u a
A r m é n i e C h i n e
P a k i s t a n
Namibie
Sénégal
Egypte
Côte d'Ivoire Vietnam
Kirghizstan Kenya Lesotho
Tanzanie Ouganda I nd e
D jib o u t
i
5 0 %
4 0 %
3 0 %
2 0 %
1 0 %
0%
6 0 %
7 0 %
8 0 %
9 0 %
1 0 0 %
1 1 0 %
1 2 0 %
0% 1 0 % 2 0 % 3 0 % 8 0 % 9 0 % 1 0 0 %
40 % 50 % 60 % 7 0 %
Mobile
penetration
2008
Linkedin Website
Banked population2008

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Current 3 trends
1) Strategy based on the pyramid: create a business
model based on people with very low purchasing
power
2) Blue ocean strategy: look for a new ocean that
rethinks differentiation and low cost and goes beyond
the limits of the industry
3) Cloning strategy: clone successful websites, and
replicate them in other countries

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B) NEW Digital business Model: ideas

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B) NEW Digital business Model: Looking to Asia

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UNIT 1

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Different tools to design and validate your Digital BM

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Cost Revenue
A business model is an Ecosystem
Explanation beyond the key elements

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ABC method:
Adquisition
Behaviour
Conversion

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Customer development by Steve Blank

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Lean Start up by Eric Ries

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Lean Canvas by Ash Maury

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Lean Canvas by Ash Maury: differences vs Canvas

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24 steps by Bill Aulet

Digital business model Unit 1 for manaegrs

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