1. PATTERN1. Unbundling Business Models 2. The Long Tails3. Multi-Sided Platforms 4. FREE as a Business Model 5. Open Business Model

2. Pattern in architecture is theidea of capturing architecturaldesign ideas as archetypal andreusable descriptions. Christopher Alexander, Architect 3. pattern similar characteristics, similar arrangementsor similar behaviors, we call thesesimilarities business model patterns. the goal in defining and describing thesebusiness model patterns is to recast well-known business concepts in a standardizedformat 4. 1. Unbundling Business Models The concept of the unbundled corporationholds that there are three fundamentally differenttypes of businesses: (1) Customer Relationshipbusinesses, (2) Product innovation businesses, and(3) infrastructure businesses. Each type has different economic, competitive, andcultural imperatives. The three types may co-exist within a singlecorporation, but ideally they are unbundled intoseparate entities in order to avoid conflicts orundesirable trade-offs. Example: mobile telecom industry, private banking 5. Unbundling the Mobile Telco Mobile telecommunication firms have startedunbundling their businesses. Traditionally they competed on network quality, butnow they are striking network sharing deals withcompetitors or outsourcing network operationsaltogether to equipment manufacturers. Why? Because they realize that their key asset is nolonger the networkit is their brand and theirCustomer Relationships. 6. Equipment Manufacturers Telcos such as France Telecom, KPN, and Vodafone have outsourcedoperation and maintenance of some of their networks to equipmentmanufacturers such as Nokia Siemens Networks, Alcatel-Lucent, andEricsson. Equipment manufacturers can run the networks at lower cost because theyservice several telcos at a time and thus benefit from economies of scale. 7. Unbundled Telco After unbundling its infrastructure business, a telco can sharpen its focus on branding andsegmenting customers and services. Customer relationships comprise its key asset and its core business. By concentrating oncustomers and increasing share of wallet with current subscribers, it can leverage investmentsmade over the years acquiring and retaining customers. One of the first mobile telcos to pursue strategic unbundling was Bharti Airtel, now one ofIndias leading telcos. It outsourced network operations to Ericsson and Nokia SiemensNetworks and IT infrastructure to IBM, allowing the company to focus on its core competency:building Customer Relationships. 8. Content Providers For product and service innovation, the unbundled telco can turn to smaller, creative firms. Innovation requires creative talent, which smaller and more dynamic organizations typically doa better job of attracting. Telcos work with multiple third-parties that assure a constant supply of new technologies,services, and media content such as mapping, games, video, and music. Two examples areMobilizy of Austria and Swedens tat. Mobilizy focuses on location-based service solutions for smartphones (it developed a popularmobile travel guide), and tat concentrates on creating advanced mobile user interfaces. 9. 2. The Long Tail 10. Long Tail Business Models are about selling less of more... They focus on offering a large number of nicheproducts, each of which sells relativelyinfrequently or low volumes. focusing on hit products can produce (evenexceeding) revenues. Long Tail business models require low inventorycosts and strong platforms to make niche contentreadily available to interested buyers. 11. Three Economics Triggers(by Chris Anderson) 3 economics triggers gave rise to thisphenomenon in media industry... Democratization of tools of production Democratization of distribution Falling search costs to connect supply with demand 12. Examples: Netflix eBay YouTube Facebook Lulu.com 13. TheTransformation of the The traditional bookBook Publishing Industry publishing model is built(Lulu.com) on a process of selection whereby publishers screen many authors and manuscripts and select those that seem most likely to achieve minimum sales targets. Publishers are most interested in books they Old Model can print in quantity for sale to large audiences. 14. TheTransformation of the enabling anyone topublish. Book Publishing Industry(Lulu.com) is based on helping nicheand amateur authorsbring their work tomarket. providing authors thetools to craft, print, anddistribute their workthrough an onlinemarketplace. A New Model authors becomecustomers. 15. LEGO Factory:Customer-Designed Kits 16. Long Tail Pattern 17. Long-Tail Pattern The value proposition of a Long Tail businessmodel is characterized by offering a wide scope ofnon-hit items that may co-exist with hitproducts. Long Tail business models may alsofacilitate and build on user-generated content. Long Tail business models focus on nichecustomers, can serve both professional andamateur content producers, and may create amulti-sided platform catering to users andproducers alike. 18. Long-Tail Pattern Long Tail business models usually rely on theInternet as a customer relationship and/ortransaction channel. Niche content providers (professional and/or user-generated) are the key partners in this pattern. The key resource is the platform; key activitiesinclude platform development and maintenance andniche content acquisition and production. 19. Long-Tail Pattern The main costs incurred cover platformdevelopment and maintenance This model is based on aggregating small revenuesfrom a large number of items. revenue streamsvary; they may come from advertising, product sales,or subscriptions. 20. Tasks... please define and create a long tail businessmodel and pattern for eBay, YouTube andFacebook each group choose one source example(eBay or YouTube or Facebook) 21. 3. Multi-Sided Platformschicken and egg dilemma. 22. bring together two or more distinct but interdependent groups of customers. Such platforms are of value to one group ofcustomers only if the other groups of customersare also present. The platform creates value by facilitatinginteractions between the different groups. A multi-sided platform grows in value to theextent that it attracts more users, a phenomenonknown as the network effect. 23. Visa Credit Card: link merchants with cardholders Microsoft Windows: link hardware manufacturers, application developers The Financial Times: link readers and advertisers Wii game console: link game developers with players Google: .............. Facebook: ................ eBay: ........................ 24. chicken and egg dilemma One way multi-sided platforms solve this problem isby SUBSIDIZING a Customer Segment. Platform operator often decides to lure onesegment to the platform with an inexpensiveor free Value Proposition in order tosubsequently attract users of the platforms otherside. One difficulty multi-sided platform operators face isunderstanding WHICH SIDE to subsidize andHOW TO price correctly to attract customers. 25. Googles Business Model The model onlyworks, though, ifmany people useGooglessearchengine. The morepeople Googlereaches, the more adsit can display and thegreater the valuecreatedforadvertisers. 26. Googles Business Model Value Propositions:1. Targeted Ads or advertising (AdWords)2. Free search or Web search (Google.com),3. third-party content monetization (AdSense)Googles Revenue Model makes money from one CustomerSegment, advertisers, while subsidizing free offers to two othersegments: Web surfers and content owners.Key Activities can be defined as follows: (1) building andmaintaining the search infrastructure, (2) managing the threemain services, and (3) promoting the platform to new users,content owners, and advertisers. 27. Apples Evolution into a Platform OperatorIn 2003 Apple introduced the In 2003 Apple introduced theIn 2008 Apple consolidated itsIn 2008 Apple consolidated itsThe iPod represented aa The iPod represented iTunes Music Store, which was iTunes Music Store, which was platform strategy by launching itsplatform strategy by launching itstechnology platform for storing closely integrated with the iPod. App Store for the highly popular technology platform for storing closely integrated with the iPod. App Store for the highly popularmusic from various sources. music from various sources. iPhone.iPhone.The store was Apples first The store was Apples firstApple was not exploiting the Apple was not exploiting the attempt at exploiting platform attempt at exploiting platformThe App Store allows users toThe App Store allows users toplatform aspect of the iPod in its effects. iTunes essentially platform aspect of the iPod in its effects. iTunes essentiallybrowse, buy, & download appsbrowse, buy, & download appsbusiness model business model connected music rightsholders directly from the iTunes Store & connected music rightsholders directly from the iTunes Store &directly with buyers. directly with buyers. install them on their iPhones.install them on their iPhones. 28. 4. FREE as a Business Model (how) can you set it free? 29. Receiving something free of charge has always been an attractive Value Proposition.The question, of course, is how can you systematicallyoffer something for free and still earn substantialrevenues? In the free business model at least one substantialCustomer Segment is able to continuouslybenefit from a free-of-charge offer. Different patterns make the free offer possible. Non-paying customers are financed by anotherpart of the business model or by another CustomerSegment. 30. Traditional FREE pattern: Advertising other: freemium model, which provides basic servicefree of charge and premium services for a fee, havebecome popular in step with the increasingdigitization of goods and services offered via theWeb.Examples: Metro (free paper) Skype Flickr Google Open SourceFree Mobile Phones 31. the 3 patterns of FREE1. free offer based on multi-sided platforms (advertising-based),2. free basic services with optional premium services (the so-called freemium model),3. the bait & hook model whereby a free or inexpensive initial offer lure customers into repeat purchases 32. 1. Advertising: a Multi-Sided Platform Model Metro (free paper)One side of the platform is designedto attract users with free content,products, or services. Another sideof the platform generates revenueby selling space to advertisers.The genius of Metro lies in how it modified the traditional daily newspaper model.First, it offered the paper for free.Second, it focused on distributing in high-traffic commuter zones and public transport networks byhand and with self-service racks. Metro developed its own distribution network.Third, it cut editorial costs to produce a paper just good enough to entertain younger commutersduring their short rides to and from work. 33. 1. Advertising Pattern 34. 2. Freemium: Get the Basics for Free, Pay forMore Flickr 35. 2. Freemium Pattern 36. 2. Freemium Pattern 37. 3. Bait & Hook or Loss Leader Bait & Hook of Free Mobile Phones Bait & hook refers to a businessmodel pattern characterized by anattractive, inexpensive, or freeinitial offer that encouragescontinuing future purchases ofrelated products or services.refers to a subsidized, evenmoney-losing initial offer with theintention of generating profits fromsubsequent purchases.Also known as a razor & blades model, popularized by King C. Gillette, inventor of the disposablerazor blade. This pattern is to describe the general idea of luring customer with an initial offering,while earning from follow-up sales.In telecommunications industry, mobile network operators offer free telephone handsets bundledwith service subscriptions and get money from subsequent monthly service fees. 38. Razor & Blades: Gillette The key to this model is the close link between the inexpensive or free initial product and the follow-up itemusually disposableon which the company earns a high margin. In 1904 King C. Gillette, who commercialized thefirst disposable razor blade system, decided to sellrazor handles at a steep discount or even give themaway with other products in order to createdemand for his disposable blades. 39. 3. Bait & Hook Pattern 40. 5. OPEN Business Model next week session... 41. OPEN Business Model can be used by companies to create and capturevalue by systematically collaborating withoutside partners. This may happen from the outside-in byexploiting external ideas within the firm, or fromthe inside-out by providing external partieswith ideas or assets lying idle within the firm. 42. Examples: P&G (Procter & Gamble), GlaxoSmithKilne, Innocentive 43. Open innovation &open business model 44. P&G: Connect & Develop 45. GlaxoSmithKlines: Patent Pools - Inside Out The inside-out approach to open innovationordinarily focuses on monetizing unused internalassets, primarily patents and technology. 46. The Connector: Innocentive Companies seeking insights from external researchersincur substantial costs when trying to attract peopleor organizations with knowledge that could solvetheir problems. 47. Thank Youwe discuss about DESIGN next week...