September 2001 Chapter 5: Business Models1 Chapter 5: Business models  Questions answered in this chapter: What is a business model? Do firms compete on value propositions or value clusters? How does the firm develop an online offering? What is a successful, unique resource system? What are the financial models available to firms? What business classification schemes seem most appropriate for the new economy?

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September 2001 Chapter 5: Business Models3 Do Firms Compete on value Propositions or Value Clusters?

September 2001 Chapter 5: Business Models4 Do Firms Compete on value Propositions or Value Clusters? (continued)  Choice of Segments Market size and growth rates Unmet or insufficiently met customer needs Week or nonexistent competitors  Choice of Focal Customer Benefits Single-benefit approach Multiple-benefit approach  Choice of Unique and Differentiating Capabilities Tangible assets Intangible assets Capabilities of the organization

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September 2001 Chapter 5: Business Models6 Quality of a value proposition or cluster  Customer Criteria. Do target customers understand the proposition or cluster? Is it relevant to their needs? Is it perceived as unique or indistinguishable from other propositions or clusters?  Company Criteria. Will the company “rally around” the proposition or cluster? Does the company have the resources or capabilities to own this cluster?  Competitive Criteria. Are other competitors trying to hold a similar proposition or cluster? Can current or future competitors match this cluster?

September 2001 Chapter 5: Business Models7 How Does a Firm Develop an Online Offering?

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September 2001 Chapter 5: Business Models9 What Is a Successful Resource System?  Modifications to the activity system logic for the online marketplace Shift from physical world to virtual and back to physical world Shift from a supply-side focus to a demand-side focus Shift from activities to capabilities Shift from single to multifirm systems

September 2001 Chapter 5: Business Models10 Specifying a Resource System  Step 1: Identify core benefits in the value cluster  Step 2: Identify capabilities that relate to each benefit  Step 3: Link resources to each capabilities  Step 4: Identify to what degree the firm can deliver each capability  Step 5: Identify partners who can complete capabilities

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September 2001 Chapter 5: Business Models12 Criteria to Assess the Quality of a Resource System  Uniqueness of the system  Links between capabilities and benefits  Links among capabilities in the system  Links among resources  Links between virtual world and physical world business systems  Sustainable advantage

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September 2001 Chapter 5: Business Models14 The Role of Partnerships  Portal agreements (AOL, Yahoo, MSN, etc.)  Anchor tenant agreements (exclusive partnerships)  Promotion agreements (cross industry promotions such as frequent-flier miles, telephone discount rates, gift certificates, etc.)

September 2001 Chapter 5: Business Models15 What Are the Financial Models Available to Firms?

September 2001 Chapter 5: Business Models16 Alternative Shareholder Value Models  Metamarket switchboard  Auctions  Category switchboard  Best information  Widest assortment  Lowest prices  Broadest user network  Best experience  Most personalized

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September 2001 Chapter 5: Business Models20 Business Classification Schemes  Porter generic strategy model differentiation strategy cost strategy niche strategy  Sawhney and Kaplan model business-to-customer hubs business-to-business hubs (vertical and functional hubs)  Rayport, Jaworski, and Siegal model Forward-integrated producers Supply-side aggregators Backward-integrated user Demand-side aggregators

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September 2001 Chapter 5: Business Models24 Marketwatch.com Business Model  Value Cluster Target segments (savvy investors, “seekers”, “dabblers”) Key benefits (up-to-the-minute information; original, in-depth analysis, personal-finance tools, multiple points of access) Supportive rationale (experienced editorial staff, multiple forms of media, CBS News and Financial Times brand names)

September 2001 Chapter 5: Business Models25 Marketwatch.com Business Model (continued)  Marketspace Offering Scope: The best provider of financial information and analysis across a number of media Media: Online, television, radio, wireless devices

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September 2001 Chapter 5: Business Models27 Marketwatch.com Business Model (continued)  Resource System CBS News Financial Times Marketwatch.com BigCharts.com Content partners (Hoovers, Zacks, INVESTools, etc.) Distribution partners (Yahoo, AOL, Quicken, etc.)

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September 2001 Chapter 5: Business Models30 Marketwatch.com Business Model (continued)  Revenue model Advertising revenue (72% in 1999) Licensing revenue (21% in 1999) Other revenue, subscription, etc. (7% in 1999)  Value model (best information)  Growth model Advanced portfolio-tracking tools International markets Services to address expanded trading hours Expand reach to wireless devices Expand TV and radio shows to more stations

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