Crafting Business Models

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Crafting Business Models

• models.ppt

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Business model components
Conceptdescribes theopportunity
1Revenue Model
2Cost Model
Valuemeasures the returnto investors
otherstakeholders
Capabilitiesdefine resources neededto turn
concept Into reality
3Asset Model
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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, RD,
  infrastructure
• Asset Model based on financial assets, property,
  plant equipment, securities, real estate,
  relationships, brand, knowledge expertise,
  agility and responsiveness, intellectual
  property, goodwill

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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)

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Focused Distributors

• Offer products services related to a specific
  market niche
• 5 types of focused distributors
• Retailers
• Marketplaces
• Aggregators
• Exchanges
• Infomediaries

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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.

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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)
• IBMs 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

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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)

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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

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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

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Step-by-Step analysis of business models

• Profile current business models
• Determine how to evolve current model and/or
  identify new models to pursue
• Use business model analysis framework to
  prioritize new models 7 initiatives by evaluating
• the concept (opportunity)
• Capabilities resources required
• Value proposition (returns to stakeholders)
• Use analysis in step 3 as benchmark to develop
  real-time performance monitoring system
• Revise strategy, implementation plan,
  performance measurement systems on ongoing basis.

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Onward!