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WHAT IS A BUSINESS MODEL?

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Definition of Business Model

A business model is a conceptual tool containing a set of objects, concepts and their relationships with the objective to express the business logic of a specific firm. Osterwalder, A., Pigneur, Y., and Tucci, C. L., “CLARIFYING BUSINESS MODELS: ORIGINS, PRESENT, AND FUTURE OF THE CONCEPT,” Communications of the Association for Information Systems, 15, May 2005.

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What a Business Model Describe

A business model describes the rationale of how an organization creates, delivers, and captures value - economic, social, or other forms of value. http://en.wikipedia.org/wiki/Business_model

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Definition of Business Model

The term business model is thus used for a broad range of informal and formal descriptions to represent core aspects of a business, including purpose, offerings, strategies, infrastructure, organizational structures, trading practices, and operational processes and policies.

http://en.wikipedia.org/wiki/Business_model

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Nine Business Model Building Blocks

Building Block

Description

Value Proposition

Gives an overall view of a company’s bundle of values.

Target Customer

Describes the segments of customers a company wants to offer value to.

Distribution Channel

Describes the various means of the company to get in touch with its customers

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Nine Business Model Building BlocksBuilding Block

Description

Relationship

Explains the kind of links a company establishes between itself and its different customer segments.

Value Configuration

Describe the arrangement of activities and resources

Core competency

Outlines the competencies necessary to execute the company’s business model

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Nine Business Model Building BlocksBuilding Block

Description

Partner Network

Portrays the network of cooperative agreements with other companies necessary to efficiently offer and commercialize value.

Cost Structure

Sums up the monetary consequences of the means employed in the business model.

Revenue Model

Describes the way a company makes money through a variety of revenue flows.

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A Model (Value Chain) in 80s

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Today’s Business Model

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SUMMARY OF “WHAT IS A BUSINESS MODEL”

More on “What Is a Business Model”

Fundamental Technology

Breakthrough

New products and features

Increased profits via existing

business model

Increased R&D

investment

VALUE PROPOSITION

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Value proposition

• The proposed value bundled and then offered to potential value recipients.• Sometimes

hard to tell.

Alma-Tadema: Courtship the Proposal

Value proposition

• Is Google’s value proposition its search? And its recipients customers?• Only its products

and services?

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Google’s Value

• No! It provides user data to "upstream" application developers

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Google’s Value Recipients

• Only its customers? • No! users (a very large number of

value propositions, often provided for free)• network partners (revenues in

return for relevant ads on their sites)• Developers• Employees, Google owners, etc.• Other business, libraries, authors

– the world!

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Google’s Value Source

• Only its revenue? –No! create momentum for a new technology – cloud computing

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The functions of a business model

• Identify a market segment–The entire

world as a segment?

• Define the structure of the value chain (or canvas)

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SAMPLE BUSINESS MODELS

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Long Tail Business Model

The Long Tail Eats the Head

Click Me!

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Business Model Example – Xerox Rental

• Market segment – corporate and government

• Value proposition – high quality copies at a low monthly lease rate

• Value chain elements – entire copier system including supplies

• Cost & margin – modest profit on equipment, high on supplies

• Value network position – first mover, not require or pursue partners

• Competitive strategy – technical product quality and capability

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Business Model Example – 3Com

• Market segment – corporate PC• Value proposition – file and printer

sharing between PCs• Value chain elements – focus on

Ethernet protocol and add-on boards

• Cost & margin – high volume low cost

• Value network position – set IEEE 802 (LAN/MAN) standard

• Competitive strategy – compete on standard and new channels