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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!