Crafting Business Models

models.ppt

Business model components

2Cost Model

1Revenue Model

3Asset Model

Valuemeasures the return

to investors & other

stakeholders

Capabilitiesdefine resources needed

to turn conceptInto reality

Conceptdescribes theopportunity

Business Model Components

• Business concept defines strategy• Capabilities defines resources needed to execute strategy• A high-performing organization returns value to all

stakeholders• Revenue Model based on sales, fees of many kinds• Cost Model based on: cost to acquire people, advertising,

material & supplies, R&D, infrastructure• Asset Model based on: financial assets, property, plant &

equipment, securities, real estate, relationships, brand, knowledge & expertise, agility and responsiveness, intellectual property, goodwill

Concepts

• Market participants may assume 2 key value chain roles– Producer– Distributor – may or may not hold inventory– If vertically integrated, they do both

• Networked business model framework distinguishes between– Focused distributors – much like off-line counterparts (e.g., – Portals – provide gateways to broad array of content, services,

products, solutions thru on-line or multi-channel distribution networks (e.g. Yahoo)

Focused Distributors

• Offer products & services related to a specific market niche

• 5 types of focused distributors:– Retailers– Marketplaces– Aggregators– Exchanges– Infomediaries

Retailer Business Model

• Example: staples.com

• Revenue model based on product/service sales

• Cost model includes procurement, inventory management, order fulfillment, and customer service (including returns

• Ratio of tangible to intangible assets much higher than firms that do not assume control of physical inventory.

Marketplace business model

• Example: E-Loan• Sell products & services• Do not hold inventory• Sell products with a non-negotiable price• Complete sales on line• Often link electronically to supplier databases &

transaction systems to make sure transaction can be completed

• Procurement & inventory costs lower

Aggregator business model

• Example: Autoweb car market

• Provide information on products & services for sale by others in the channel

• Buyer cannot complete final transaction inside website: http://www.autoweb.com

• Revenue model based in referral fees & advertising

• Customers often use such sites to comparison shop so aggregator cannot claim referral fee

Infomediary business model

• Example: Internet Securities http://www.securities.com/ • Unites buyers & sellers of information-based products such as

news, weather, sports & financial information• Transactions are complete online• May charge individual or corporate (if B2B) subscription fee for

services• B2C infomediaries may provide information service free to

consumers & make money from advertising revenues paid by sponsors or affiliates

• Barriers to entry are low because information is readily available & cost of packaging & delivering it is low– Need to develop unique value-added content and analytical

tools for which they charge users– Collect information about users of their systems & sell it

Exchange business model

• Examples: eBay & marketplace

• May or may not take control of inventory

• May or may not complete final sales transaction online

• Price is not set– key differentiating factor

• Revenue, cost & asset models vary depending on whether online exchange assumes control of inventory & completes the transaction

Portals

• 3 types of portal business models– Horizontal– Vertical– Affinity

• Differentiated by following questions– Gateway to full range of online & information services?– Provide access to deep content, products, & services

within a vertical industry (e.g. travel)– Provide information to all users or defined group

Horizontal portals

• Examples: AOL.com, yahoo!.com, quicken.intuit.com

• Provide gateway access to information

• Broad range of tools to locate information, communicate, develop online communities

• Original business model – tv type advertising

• Switched to charges for revenues from transaction fees

• Often partner with ISPs

Vertical portals

• Example: covisint.com & webMD.com• Provide deep content• Place to conduct business, learn, shop,

communication & community building tools• Variety of business models combined, each

producing own revenue streams:– Subscriptions– Transaction charges– advertising

Affinity portals

• Example: iVillage.com, realtor.com

• Deep content, commerce & community features

• Targeted toward specific market segment or specific event

• Revenue, cost & asset models based on business models adopted by the portal

Producers

• Manufacturers – Ford Motors

• Service providers – American Express

• Educators – Cal Poly Pomona

• Advisors – McKinsey

• Information & News providers: Dow Jones

• Producer portals support all aspects of production & distribution process via Internet

Networked Infrastructure Providers

• Infrastructure distributors enable buyers & sellers to transact business– Infrastructure retailers – compusa.com– Infrastructure marketplaces - tech data, sell computer

& network products, may have to keep inventory– Infrastructure aggregators – ZDNet.com, provides

reviews of technology– Infrastructure exchanges – converge.com – auction

new & used electronic equipment

Infrastructure Portals

• Provide access to wide range of network, computing & application hosting services– Horizontal infrastructure portals: ISPs– Vertical infrastructure portals: also called ASPs

(Application Service Providers)• IBM’s E-Business solutions• ASPs host & maintain software applications, enabling

organizations to log in and use them on-line• Generate revenues from hosting & maintenance fees,

consulting & system integration fees

Infrastructure Producers

• Design, build, market & sell technology hardware, software, solutions, services

• May provide after-market services

• Types– Equipment/component manufacturers (IBM, Sony)– Software firms (SAP, Microsoft)– Customer software & integration providers (Accenture)

Infrastructure Service Providers

• Example: Fedex

• Provide online/offline services to support logistics, marketing & other shared services

• Revenues from subscription fees, service fees, transaction fees

• Costs based on physical infrastructure & skilled professionals

Evolving Business Models

• Example of amazon.com• Enhance current products/services

– Added 1-click shopping & wireless device shopping

• Expand into new product/service categories– Launched music & DVD/video in 1998

• Extend products/services– 2 On-line auction stores (high end & low end)– Entered equity partnerships with other retailers

• Exit – sell it or spin it off– Ended relationship with home living.com retailer when they went

bankrupt in 2000

Step-by-Step analysis of business models

1. Profile current business models2. Determine how to evolve current model and/or identify

new models to pursue3. Use business model analysis framework to prioritize

new models 7 initiatives by evaluating1. the concept (opportunity)2. Capabilities & resources required3. Value proposition (returns to stakeholders)

4. Use analysis in step 3 as benchmark to develop real-time performance monitoring system

5. Revise strategy, implementation plan, & performance measurement systems on ongoing basis.

Onward!