CS37420CS37420

Business Models 1Business Models 1

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A set of planned activities designed to result in a profit A set of planned activities designed to result in a profit In the market placeIn the market place Key Factors Key Factors value proposition - why buy value proposition - why buy revenue model - earn money revenue model - earn money market opportunity - what market spacemarket opportunity - what market space market strategy - promotion and attractionmarket strategy - promotion and attraction competitive environment - other competitorscompetitive environment - other competitors competitive advantage - what advantage competitive advantage - what advantage organisational structure - necessary structure organisational structure - necessary structure management team - what experience etcmanagement team - what experience etc

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Value PropositionValue Proposition

The heart of the business model:The heart of the business model:defines how the product/service fulfils needs;defines how the product/service fulfils needs;defines why the customer will choose you; defines why the customer will choose you; the offering is personalised and customised; the offering is personalised and customised; reduced costs ; reduced costs ; facilitation of transactions - payments etc.; facilitation of transactions - payments etc.; reliable and quick delivery services.reliable and quick delivery services.

e.g. Amazon offers:e.g. Amazon offers:convenience - 24 hours a day convenience - 24 hours a day comfort of own home (no trip to shops) comfort of own home (no trip to shops) book in stock ( a shop can hold only so many ) book in stock ( a shop can hold only so many ) good price and quick delivery good price and quick delivery

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Revenue or Financial ModelRevenue or Financial Model

How to :- How to :- earn revenue earn revenue generate profit generate profit produce a superior return on invested capital above all produce a superior return on invested capital above all

greater than alternative investments greater than alternative investments e.g. a retailer buys and sells and makes an operating profit he e.g. a retailer buys and sells and makes an operating profit he

also needs to make enough profit to cover the capital (loan also needs to make enough profit to cover the capital (loan or savings) needed to start up and keep the business going or savings) needed to start up and keep the business going and growing.and growing.

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Ways of getting incomeWays of getting income

advertisingadvertising subscription subscription transaction feetransaction fee sales sales affilliate or referral affilliate or referral

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Sources of incomeSources of income

AdvertisingAdvertisingA firm provides a forum for advertisements and receives a fee A firm provides a forum for advertisements and receives a fee from advertisers. from advertisers. Initially very popular - then decline – now rising. Still a primary source of Initially very popular - then decline – now rising. Still a primary source of revenue revenue

SubscriptionSubscription A web site charges a fee for access to content or services. A web site charges a fee for access to content or services. Usually high value premium offering, not readily available elsewhere, e.g. Usually high value premium offering, not readily available elsewhere, e.g. consumer reports on line, newsletters, newspaper crosswords etc. consumer reports on line, newsletters, newspaper crosswords etc.

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Sources of incomeSources of income

Transaction feesTransaction feesa fee for enabling or executing a transactiona fee for enabling or executing a transactione.g. eBay created an online auction marketplace and charges a fee from the seller e.g. eBay created an online auction marketplace and charges a fee from the seller when the sale is made; e.g. E-Trade - a fee for a stock transactionwhen the sale is made; e.g. E-Trade - a fee for a stock transaction

Sales Sales

selling goods , information , or services, e.g. Amazon – books, music, videos, selling goods , information , or services, e.g. Amazon – books, music, videos, antiques etc; e.g. Doubleclick - information; Salesforce – sales management antiques etc; e.g. Doubleclick - information; Salesforce – sales management services services

Affiliate Affiliate the site steers business to an affiliate and receives a referral fee the site steers business to an affiliate and receives a referral fee or percentage of the revenue from a sale, e.g. Plane tickets, electronics via or percentage of the revenue from a sale, e.g. Plane tickets, electronics via Kelkoo, Google AdwordsKelkoo, Google Adwords

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Market OpportunityMarket Opportunity

A company’s intended market space and the potential financial A company’s intended market space and the potential financial opportunities available, usually a series of smaller market niches opportunities available, usually a series of smaller market niches but, realistically, only some of the niches.but, realistically, only some of the niches.Example: a software training company that writes software learning Example: a software training company that writes software learning systems and sells them to companies.systems and sells them to companies.The market size of this niche is estimated at $100 billion.The market size of this niche is estimated at $100 billion.

A small company cannot compete with large brand names A small company cannot compete with large brand names selling to big companies, so aims at thousands of small selling to big companies, so aims at thousands of small businesses – a niche worth some $10 billion.businesses – a niche worth some $10 billion.

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Market StrategyMarket Strategy

The plan which details how one intends to enter a new The plan which details how one intends to enter a new market and attract new customers, basically promoting market and attract new customers, basically promoting one’s products and servicesone’s products and servicesExamples:- Examples:-

Faster/better search engine - Google Faster/better search engine - Google Yahoo invested heavily in advertising to tell the public Yahoo invested heavily in advertising to tell the public

about its site;about its site; AOL used sampling - sent out millions of CDs with a free AOL used sampling - sent out millions of CDs with a free

trial offer in magazines and newspapers.trial offer in magazines and newspapers. Use of TV to advertise (Comparethemeerkat.com)Use of TV to advertise (Comparethemeerkat.com)

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Competitive EnvironmentCompetitive Environment

Refers to other companies selling similar products or Refers to other companies selling similar products or services in the same market space. services in the same market space.

Several questions:- Several questions:- how many competitors?how many competitors? how large are their operations?how large are their operations? what market share has each? what market share has each? how profitable are they?how profitable are they? how do they price their products?how do they price their products? is the market saturated or untapped or what status?is the market saturated or untapped or what status?

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Competitive AdvantageCompetitive Advantage

First mover advantageFirst mover advantage first into market place with a serviceable product or service; first into market place with a serviceable product or service; develop a loyal following, with something difficult to imitate develop a loyal following, with something difficult to imitate most first movers lack resources. most first movers lack resources.

Amazon is an excellent example of a first mover & an exception in not Amazon is an excellent example of a first mover & an exception in not lacking resources.lacking resources.

In a perfect market all firms have equal access to all the factors of In a perfect market all firms have equal access to all the factors of production including information and knowledge. Real markets are production including information and knowledge. Real markets are imperfect, competition is usually asymmetrical. imperfect, competition is usually asymmetrical.

Most competitive advantages are short term; some, however, go on for Most competitive advantages are short term; some, however, go on for a long time e.g.Coca Cola.a long time e.g.Coca Cola.

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Competitive AdvantageCompetitive Advantage

Produce a superior product or service or bring it to market Produce a superior product or service or bring it to market at a lower price at a lower price Possible factors: Possible factors:

differential access to the factors of productiondifferential access to the factors of production favourable terms from suppliers, shippers, labour etc favourable terms from suppliers, shippers, labour etc more experienced staff - better managers more experienced staff - better managers a patent that others cannot imitate a patent that others cannot imitate access to investment capital access to investment capital brand name or popular image. brand name or popular image.

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OrganisationOrganisation

Functional areas (classical) Functional areas (classical) production production transport transport marketing marketing finance finance human resourceshuman resources customer support customer support

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ManagementManagement

perhaps the most important element required to make the perhaps the most important element required to make the

business model work;business model work; a strong team is necessary for credibility; a strong team is necessary for credibility; market – specific knowledge is required but – market – specific knowledge is required but – generalists to start; generalists to start; ability to change the model or redefine it; ability to change the model or redefine it; major weakness in initial e-commerce was lack of major weakness in initial e-commerce was lack of

experienced management.experienced management.

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Business ModelsBusiness Models

Comments - Comments - many different kinds – many overlaps many different kinds – many overlaps broad definitions have been chosen, categorised by general type of e-broad definitions have been chosen, categorised by general type of e-

commercecommerce companies will normally operate one kind of business model (at least companies will normally operate one kind of business model (at least

to start ) but some use multiples, e.g., eBay is C2C and B2Cto start ) but some use multiples, e.g., eBay is C2C and B2C