IT Business

Models
 Contents

Business Models

Key Elements of Business Models

Business Model Generation

Categories of Business Models

 Business Models
“A business model is what a business does and how it
makes money.”

“A business model describes the

rationale of how an organization
creates, delivers, and capture
value.”
Business Model Generation
 A set of planned activities designed to result in a
profit in a marketspace.
 Description of how the enterprise produces,
delivers and sells products or services, thus
showing how it delivers value to the customers
and how it creates wealth [Margretta 2002].
 Refers to the structure and processes in place to
operationalise the strategy of the business.
 An architecture for the product, service and
information flows;
 A description of the various business actors
and their roles;
 A description of the potential benefits for the
various actors;
 A description of the sources of revenues.
 An Anecdote: Encyclopedia Britannica

• Founded by 3 Scottish printers in 1768

• Earliest and most famous encyclopedia - evolved through 15
editions
• Bought over by Sears
• Peak of the business – sold over USD650m in 1990
• Strength: Comprehensive and authoritative, Good business
model, reputable publisher
• After 1990, sales drop by 80%
• Threat: CD ROM – Microsoft gave away free encyclopedia
Encarta. which could fit 7million words with illustrations and
interactivity.
• Britannica has 40m words. Cost of producing one
encyclopedia USD250, USD600 given to salesman.
• ENDING?
5
 The Cheap Revolution
• Shift from buying expensive proprietary products to buying cheap
generic products
– “Cheap Tech”
• Cost savings are compelling
– Google = runs on 100,000 cheap servers
• One breaks = discards
– Avoids expensive service contracts and in-house staff

– “Dellification”
• Moved from selling PCs to also selling servers, printers, storage
devices….
– “Cheap” is occurring elsewhere:
• Labor – outsourcing to other countries
• Film production – camcorders etc.
• Software – Linux Vs. Microsoft
• Telecommunications – Voice-over-IP…
6
 Key Elements of a Business Model?

Value Proposition • Why should the customer buy from you?

Revenue Model • How will you earn money?

Market Opportunity • What marketspace do you intend to serve? What is its size?

Competitive environment • Who else occupies your marketspace?

• `What special advantage does your firm bring to the

Competitive Advantage marketspace?

Market Strategy • How do you plan to promote your products or services?

• What types of organisational structures within the firm are

Organisational development necessary to carry out the business plan?

• What kinds of experiences and background are important for the

Management Team company leaders to have?
 The Five Forces Model – Evaluating Business
Segments

• Organizations use Porter’s Five Forces Model to determine the relative attractiveness of an
industry
 Advertising

Affiliate Subscription
Revenue
Model

Transaction
Sale
Fee
 Business Model Generation
• Canvas
• Patterns
• Design
• Strategy
• Process
• Outlook
• Afterword
 Value
Propositions Customer
Key Activities Relationships
Customer
Segments
Key
Partnerships

Channels

Revenue
Streams
Cost
Structure Key
Resources

The 9 Building Blocks

The Canvas
 1- Customer Segments

• For whom are we creating value?

• Who are our most important customers?

 1- Customer Segments
1. Mass Market – do not distinguish between customer
segments. VP, CH, CR are the same – electronics sector.
2. Niche market – Cater to specific, specialized customer
segments. Tailored to specific requirements – car part
manufacturer.
3. Segmented – Distinguish between market segments with
slightly different needs and problems. – metal – auto, watch &
medical.
4. Diversified – serves two unrelated customer segments with
different needs and problems. Amazon – add cloud
computing to the retail business.
5. Multi sided markets – serve 2 or more interdependent
customer segments. Credit card company – large base of card
holders vs large base of merchants. Free newspaper needs a
large reader to attract advertisers.
 2 - Value Propositions

• What value do we deliver to the customer?

• Which one of the customer’s problems are we
helping to solve?
• Which customer needs are we satisfying?
• What bundles of products and services are we
offering to each Customer Segment?
 2 - Value Propositions
1. Newness – satisfy new set of needs that customers
previously didn’t perceive because there are no similar
offering = hand phones.
2. Performance – Improving product or service performance.
PC.
3. Customization – Tailoring products and services to the
specific needs of customers creates value. Mass
customization.
4. “Getting the job done” – helping customer get certain jobs
done. Roll Royce & airline.
5. Design – important but difficult element to measure. –
fashion
6. Brand/Status – customers find value in using & displaying
brand. – Coca Cola
 2 - Value Propositions
7. Price – offering similar value at lower price – Air Asia
8. Cost reduction – helping customer reduce price is an
important way of creating value - leasing
9. Risk reduction – reducing risk when purchasing products or
services – used car.
10. Accessibility – making products and services available to
customers who previously lacked access. NetJets
11. Convenience/usability – easy to use. iPod, iTunes, iPad.
 3 - Channels

• Through which channels do we reach our

customer?
• How are we reaching them now?
• How are our channels integrated?
• Which ones work best?
• Which ones are more cost efficient?
• How are we integrating them with customer
routines?
 3 - Channels
TYPES PHASES

sales force Awareness

Direct

web sales
Own

Evaluation
own stores Purchase
Indirect

partner stores Delivery

Partner

wholesaler After Sales

 4 - Customer Relationships

• What kind of relationship does each of our

customer segments expect us to establish and
maintain with them?
• Which ones have we established?
• How costly are they?
• How are they integrated with the rest of our
business model?
 4 - Customer Relationships
Customer Customer Boosting Sales
Acquisition Retention (Upselling)
1. Personal assistance – Communicate with real customer rep –
call center, point of sale.
2. Dedicated personal assistance – Dedicating a custrep for a
client.
3. Self-service – customer help themselves.
4. Automated services – mix of self service + automated process.
5. Communities – utilizing social network.
6. Co-creation - go beyond traditional customer-vendor
relationship. Amazon invites customer reviews – add value to
book. You Tube solicit customers to create content.
 5 – Revenue Streams

• For what value are our customers really willing

to pay?
• For what do they currently pay?
• How are they currently paying?
• How would they prefer to pay?
• How much does each revenue stream
contribute to overall revenues?
 5 - Revenue Streams
1. Asset Sale – selling ownership rights to a physical product.
2. Usage Fee – the more a service is used, the more the
customers pay. Telco, hotels.
3. Subscription Fees – Selling continuous access to a service.
4. Lending/renting/Leasing – temporarily granting rights to a
user for a fee. Auto
5. Licensing– give customers permission to use IP in exchange
for licensing fees. Microsoft.
6. Advertising – Advertise a brand, product or service.
7. Brokerage Fees – intermediation services performed on
behalf of 2 or more parties. Credit card, real estate agents.
8. Affiliate marketing -
 6 - Key Resources

• What key resources do our value propositions

require?
• Our distribution channels?
• Customer relationships?
• Revenue Streams?
 6 – Key Resources
1. Physical – Physical assets e.g. buildings, vehicles, machines.
Wal Mart & Amazon.
2. Intellectual – Intellectual resources such as brands (Nike &
Sony), proprietary knowledge (Microsoft & SAP), patents &
copyrights, partnerships and customer database.
3. Human – Human resources critical in knowledge intensive &
creative industries.
4. Financial – financial resources and/or financial guarantees,
such as cash, lines of credit. Ericsson, IPTS.
 7- Key Activities

• What key activities do our value propositions

require?
• Our distribution channels?
• Customer relationships?
• Revenue Streams?
 7 – Key Activities
1. Production – activities related to designing, making,
delivering products in substantial quantities and/or superior
quality. Manufacturing firms. Dell supply chain.
2. Problem Solving – New solution to Individual customer
problems. Operations of consultancies, hospitals, service
organizations.
3. Platform/Network – Networks, match-making platforms,
software, & brands. E-Bay’s platform – its website. Visa
credit card, transaction platform for merchants, customers
and banks. Microsoft – managing interface between other
vendors’ software with its Windows OS.
 8 – Key Partners
• Strategic Alliance between non competitors
• Coopetition: strategic partnership between competitors
• Joint ventures to develop new businesses
• Buyer-supplier relationships to assure reliable supplies

• Who are our key partners?

• Who are our key suppliers?
• Which key resources are we acquiring from
partners?
• Which key activities do partners perform?
 8 – Key Partners
Three motivations for creating partnerships.
1. Optimization and economy of scale – The most basic form of
partnership is designed to optimize the allocation of resources
and activities. To reduce costs, and often involve outsourcing
or sharing infrastructure.
2. Reduction of risk and uncertainty – Partnerships help reduce
risks in a competitive environment characterized by
uncertainty. Forming strategic alliances in one area while
competing another.
3. Acquisition of particular resources and activities – Few
companies own all resources or perform all activities
described by their business models e,g A mobile phone
manufacturer, may license an operating system for its handset
rather than developing one inhouse.
 9 – Cost Structure

• What are the most important costs inherent in

our business model?
• Which key resources are most expensive?
• Which key activities are most expensive?
 9 – Cost structure
• Fixed Costs - cost that remain the same despite the
volume of goods or services
• Variable costs - vary propotionally with volume
• Economies of scale - cost advantage that a business enjoys
as its output expand. Lower bulk purchase rates.
• Economies of scope - cost advantage that a business
enjoys due to a larger scope of operations. Same
distribution channels support multiple products.

1. Cost-driven – minimize costs – no frills airline.

2. Value-driven – focus on value creation – luxury hotels
 Manufacturer selling directly
to customers - E-tailing
Online
direct seller of services
Integrated services marketing
Search services, Service
contents, news, Portal
Provider
e-mail, chat etc

sellers submit bids and

the lowest bidder wins
Categories
of
Subscription Tendering
Business
Models

Community Online
Provider Auction
site where people of
common interests can Product &
come together Service e-Bay
Customisation Lelong.com.my
 Transplanted
Native Internet
Real-World
Business Model
Business Model

Amazon Wiki, Blogs,

Mail Order Library

Yahoo, Google Free software

Advertising Freeware

Access By ISPs
Software Free Trial
Provision

Web
Web space, domain names Real estate
hosting Free web hosting
 Classification of Internet-based Business Model

Multiple
functions/
Value Chain Integrator
integrated

3rd party marketplace

Collaboration platform
Functional
Integration e-Mall Virtual Community

Value Chain Service Provider

E-Procurement E-Auction

Trust services
E-Shop
Information brokerage
Single
functions
Lower Higher
Degree of Innovation