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Crafting Business Models. models.ppt. Business model components. Concept describes the opportunity. 1 Revenue Model. 2 Cost Model. Value measures the return to investors & other stakeholders. Capabilities define resources needed to turn concept Into reality. 3 Asset Model.

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Business model components l.jpg
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, 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


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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)

      • 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


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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.