Chapter 3 Business Models

Traditional Organizational Structure Vertical and hierarchicalFunction-basedProduct-basedGeography-basedHigh coordination costs (costs of sending, storing and retrieving information)Seller- or product-driven, aiming to generate value at the of line-of -business level

Pressures Forcing Business Changes for New Business Models Competition fiercer and more globalCustomers become increasingly demandingIncrease in competition leads companies to rethink their position in the marketNetworking strategies are required to provide high quality and cost-efficient products possible by the development of information technology

New Organizational Structure Hierarchical, procedural and other new coordination mechanisms which leads to network based business modelsTeam-based structureCustomer focused: value is generated at the relations level, across products and channelsCreation of internet based business models (5 Business models Classifications)

Business Model Timmers (1999) defines a ‘business model’ as: An architecture for product, service and information flows, including a description of the various business actors and their roles; and a description of the potential benefits for the various business actors; and a description of the sources of revenue.

Business Model business model takes a central position in a business strategyBusiness model is defined as a descriptive representation of the fundamental components of a business The internal aspects of a business venture;The type of relationships of the enterprise with its external environmentcompany’s information assets are embedded in the business venture product or service that a company deliverssources of revenuecompany’s structure and processes

8 Key Elements of a Business Model Value propositionRevenue modelMarket opportunityCompetitive environmentCompetitive advantageMarket strategyOrganizational DevelopmentManagement team

1. Value Proposition Why should the customer buy from you?Successful e-commerce value propositions: Personalization/customizationReduction of product search, price discovery costsFacilitation of transactions by managing product delivery

2. Revenue Model How will the firm earn revenue, generate profits, and produce a superior return on invested capital?Major types: Advertising revenue modelSubscription revenue modelTransaction fee revenue modelSales revenue modelAffiliate revenue model

3. Market Opportunity What marketspace do you intend to serve and what is its size? Marketspace: Area of actual or potential commercial value in which company intends to operateRealistic market opportunity: Defined by revenue potential in each market niche in which company hopes to competeMarket opportunity typically divided into smaller niches

4. Competitive Environment Who else occupies your intended marketspace? Other companies selling similar products in the same marketspaceIncludes both direct and indirect competitorsInfluenced by:

5. Competitive Advantage Achieved when firm: Produces superior product or Can bring product to market at lower price than competitorsImportant concepts:

6. Market Strategy How do you plan to promote your products or services to attract your target audience? Details how a company intends to enter market and attract customersBest business concepts will fail if not properly marketed to potential customers

7. Organizational Development What types of organizational structures within the firm are necessary to carry out the business plan?Describes how firm will organize work Typically divided into functional departmentsAs company grows, hiring moves from generalists to specialists

8. Management Team What kinds of experiences and background are important for the company’s leaders to have? Employees are responsible for making the business model workStrong management team gives instant credibility to outside investorsStrong management team may not be able to salvage a weak business model, but should be able to change the model and redefine the business as it becomes necessary

Online Grocers: Finding and Executing the Right Model Why are more traditional grocery chains succeeding online today? Why would an online customer pay the same price as in the store plus a delivery charge? What’s the benefit to the customer?

Business Models – 3 perspectives participants in a joint business venture.processes and structure of a business organization.how business models are seen from the perspective of a marketplace.

Definition 1: Perspective on the participants in a joint business venture. • Participants and their relationships • Benefits and costs to each participant • Flows of revenue

Definition 2: Perspective on the processes and structure of a business organization • Product and service architecture and information flows • Business actors and their roles • Potential benefits for the various actors • Sources of revenues

Definition 3: Perspective of a marketplace • Activities: B2B, B2C or both • Position in the value chain • Value proposition • Target customers • Revenue model • Representation: bricks, clicks or both

5 e-Business Models Classifications Internet-enabledValue-webE-business enabledMarket participant Cyber-intermediary

Internet Enabled Business models P. Timmers (1998) continued

Value-web Business Model

The Family of e-Business Enabled Business Models Classification scheme of business models that is especially valid for business-to-business contextsTypical of most common modern IT-based business organizations engaging in e-Business5 business model types Tele-workingVirtual organizationProcess outsourcingCollaborative product developmentValue-chain integration

The Family of e-Business Enabled Business Models

The Market Participants Business Model

Role of a Portal Employee E-Business Portals Customer Partner Content

Three Types of Portals Horizontal PortalsVertical PortalsAffinity Portals

Cybermediaries Business Model Intermediation in electronic marketsFacilate exchanges between producers and consumersIncrease efficiency of electronic markets