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Crafting Business Models

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  1. Crafting Business Models models.ppt

  2. Business model components Conceptdescribes theopportunity 1Revenue Model 2Cost Model Valuemeasures the returnto investors & otherstakeholders Capabilitiesdefine resources neededto turn concept Into reality 3Asset Model

  3. 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

  4. 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)

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

  6. 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.

  7. 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

  8. 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

  9. 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

  10. 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

  11. 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

  12. 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

  13. 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

  14. 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

  15. 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

  16. 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

  17. 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

  18. 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)

  19. 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

  20. 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

  21. 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.

  22. Onward!