Chapter 3 Business Models

Chapter 3 Business Models
e-commerce Chapter 3 Business Models Amsterdam Athens Cambridge Frankfurt Hong Kong Istanbul Johannesburg London Los Angeles Madrid Manila Milan Moscow Munich New Delhi New York Paris São Paulo Seoul Singapore Stockholm Tel Aviv Tokyo Toronto Zurich Use the Notes Page View for a more in-depth, point-counterpoint, or comparative discussion in each slide overview/outline. Copyright © 2000 by Monitor Company, Inc. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means — electronic, mechanical, photocopying, recording, or otherwise — without the permission of Monitor Company. This document provides an outline of a presentation and is incomplete without the accompanying oral commentary and discussion. COMPANY CONFIDENTIAL

 What is a business model?
Questions  What is a business model?  Do firms compete on value propositions or value clusters? How does a firm develop an outline offering-whether product, service, or information?  What is a successful, unique resource system? What are characteristics of good resource systems?

 What are the financial models available to firms?
Questions  What are the financial models available to firms?  What business classification schemes seem most appropriate for the New Economy?

Components of a Business Model
Value Cluster Marketspace Offering Resource System Financial Model

A Business Model Four business choices on the part of senior management a value proposition or a value for targeted customers a marketspace offering product, service, information, or all three a unique, defendable resource system a financial model

Value Propositions or Value Clusters
First step to specify the value proposition for the business Items include choice of target segment choice of focal customer benefits rationale for why the firm can deliver the benefit package significantly better than competitors in the same space Can view as value cluster the choice of target customer segments a particular focal combination of customer-driven benefits that are offered the rationale for why this firm and its partners can deliver the value cluster significantly better than competitors

Choice of Segments Target segments Market size and growth
Unmet or insufficiently met customer needs Weak or nonexistent competitors Examine ability to compete through examining a business’ strengths matching the customers benefits sought

Choice of Segments... Degree of fit with existing channels Can be
demographic segments benefit segments, or combination Segmentation example demographic segment the under-30 segment upper-income segment benefit segment fresh flowers most convenient buying method lowest priced flowers Must maximize actionability and meaningfulness

Point-Counterpoint: Single Vs. Cluster of Benefits

Choice of Focal Customer Benefits
Second step specification of the key benefits to the target segment trying to compete on more than one benefit creates problems customers confused about message on supply side, systems must n\be uniquely constructed to deliver certain benefits

Choice of Focal Customer Benefits...
price sensitivity can actually decrease when usability of quality information increase factors price customer support on-time delivery shipping and handling privacy concerns could be the dominance of direct buying from manufacturer

Shattering Myth That Consumers Care Only About Prices On-line
PERCENTAGE OF CUSTOMERS WHO CARE ABOUT ATTRIBUTE ATTRIBUTE Source: JP Morgan Report: etailing and the five Cs

Choice of Unique and Differentiating Capabilities
Third component compelling rationale of why a particular firm can proved a single benefit factors with inside the firm leading to delivery of targeted benefits “core competencies” “business strengths” “strategic control points” “unique resources” “unique capabilities” key is linking directly to the core benefits of value proposition

Value Propositions or Clusters
Dot.com flower comparisons PC Flowers & Gifts special occasions target segment key benefits fresh flowers complementary gifts lower prices differentiating capabilities online experience and knowledge unique, broad product line of complementary gifts proflowers price sensitive, convenience oriented freshest cut flowers at competitive prices FedEx shipping

Value Propositions or Clusters...
Dot.com flower comparisons... FTD.com mid-to-high end market ease of sending flowers and gifts supplier network 1-800-flowers.com mid-to-high end market with broad assortments, fresh flowers, reasonable prices easy to access because of their strong brand name product and media partnerships brick-and-mortar network of franchises (I.e. Bloomnet) How differentiated are these value propositions?

Classes of Criteria Customer Criteria understand criteria?
relevant to needs? believable? unique or “me-too”? provoke action? Company Criteria a rally point? resources or capabilities available? block or facilitate move to additional vertical markets? Competitive Criteria others attempting to hold a similar proposition or cluster? will others allow the focal company to own cluster? can competitors match cluster? ease at matching cluster?

Develop an Online Offering
First step -- Articulating the online product through three sequential tasks Identify scope of the offering Identify customer decision process Map the offering (product, services, information) to the decision process Scope of Offering the categories of products and services offered onsite Category-specific dominance Cross-category dominance

Develop an Online Offering...
“metamarkets” those sites offering a category of clustered goods and services “Customers think in terms of activities, while firms think in terms of products…Metamarkets, then, are clusters of markets in the minds of customers.” Mohanbir Sawhney Online businesses can be organized in a variety of goal-derived ways.

Identify Consumer Decision Process
Second step -- Articulating the consumer decision process for the various product categories Prepurchase Purchase Postpurchase

Consumer Decision Process — Flower Example
Flowers Disposal Loyalty Satisfaction Purchase Decision Evaluation of Alternatives Information Search Problem - Recognition Pre-Purchase Purchase Post-Purchase Need recognition, potentially triggered by a holiday, anniversary or everyday events Search for ideas and offerings, including: Available on-line and off-line stores Gift ideas and recommendations Advice on selection style and match Evaluation of alternatives along a number of dimensions, such as price, appeal, availability, etc. Purchase decision Message selection (medium and content) Post-sales support Order tracking Customer service Education on flowers and decoration Post sales perks

Consumer Decision Process — Flower Example
Disposal Loyalty Satisfaction Purchase Decision Evaluation of Alternatives Information Search Problem - Recognition PRE-PURCHASE PURCHASE POST-PURCHASE

Identify Consumer Decision Process...
Third step -- Mapping products and services onto the customer decision process Articulating the steps of the decision process for a particular product category Identify the products, services, and information

Egg Diagram for 1-800-flowers.com
Gift reminder service Holiday specials Everyday celebrations suggestions Special occasion suggestions “Care and handling” “Do it yourself” Special events and educational workshops held at stores Ideas and Information Floral ideas Garden ideas Home ideas Gift ideas Gourmet ideas Store locator Recommendations by budget Best sellers Flower / Gift Decision Process Need Recognition Product Offering Education on Flowers and Decoration Search For Ideas and Offerings Post-Sales Support Gift Recommendations Order receipt eQ&A online customer service FAQ Customer service inquiry form Gift guru Favorite gifts Gift frequency Gift impossible Gift baskets Corporate gift services Post Sales Support and Perks Evaluation of Alternatives Perks Miles earned with flower purchases Free gifts Discounts at AOL & BN with flower purchases Member specials Product price Product picture Product description Delivery information Delivery availability Message Selection Purchase Decision Shopping basket E commerce transaction Special shopping features Delivery outside U.S. 1-800-lasfloras.com Gizmo fully-animated greeting cards Physical cards in gifts

What Is a Successful, Unique Resource System?
Value proposition and offering specification critical Dictate resource system of the company Unique activities, tied to a value proposition, lead to a competitive advantage Selection of capabilities and activities Supply of resources Four modifications Shift from Physical World to Virtual-and-Physical World Shift from a Supply-Side Focus to a Demand-Side Focus initial focus on the benefits desired by targeted customers Shift from Activities to Capabilities higher order of skills and assets of the company physical or intangible assets Shift from Single to Multifirm Systems partnerships

Specifying a Resource System
Construction of 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 Capability Step 4) Identify to Which Degree the Firm Can Deliver Each Capability Step 5) Identify Partners Who Can Complete Capabilities

1-800-flowers.com Resource System
Address Book BloomNet Network Third Party Contractors Strong Distribution Network Gift Recommend- ations Fulfillment Center Stores Online Gift Center Gift Reminder Broad Assortment of Gifts High Quality of Flowers Rich Content Personalization Capabilities Popular Web Site Garden Works Integrated Partner Offers Telephone 3,000 Affiliates Plow & Hearth On-line Customer Service Widespread, Easy Access Great Foods Multiple Contact Points Fran -chise Stores Catalog Technology Strong Brand Name Wide Reach to Customers Customer Service Centers = Core Benefits SNAP Starmedia = Activities & assets Integrated on-line off-line systems AOL MSN = Capabilities

Benefits and Challenges of Hybridization
Persistent connection with customers New value for customers Access to new customers Scalability Cannibalization Channel conflict Customer confusion Investor confusion

On-line/Off-line Egg Diagram for 1-800-flowers.com
Prompts on toll free number recording Suggestions from CSRs* in stores and via phone Special events and educational workshops held at stores Prompts on toll free number recording Suggestions from CSRs* in stores and via phone Brochure Gift reminder service Holiday specials Everyday celebrations suggestions Special occasion suggestions Off-line Product Offering Ideas and Information “Care and handling” “Do it yourself” Floral ideas Garden ideas Home ideas Gift ideas Gourmet ideas Store locator Recommendations by budget Best sellers Flower / Gift Decision Process Need Recognition On-line Product Offering Gift Recommendations Education on Flowers and Decoration Search For Ideas and Offerings Gift guru Favorite gifts Gift frequency Gift impossible Gift baskets Corporate gift services Suggestions from CSRs in stores via phone Brochure Post-Sales Support In-store customer service Customer service on toll-free number Order receipt eQ&A online customer service FAQ Customer service inquiry form Post Sales Support and Perks Evaluation of Alternatives Product price Product picture Product description Delivery information Delivery availability Information from CSRs in store and via phone Brochure Perks In-store specials Specials offered via phone Miles earned with flower purchases Free gifts Discounts at AOL & BN with flower purchases Member specials Message Selection Purchase Decision Shopping basket E commerce transaction Special shopping features Delivery outside U.S. 1-800-lasfloras.com Gizmo fully-animated greeting cards Physical cards in gifts Select card in-store Select card via phone Purchase in-store Purchase via phone *CSR = Customer service representative

On-line and Off-line Integration for the 1-800-FLOWERS Resource System
Address Book BloomNet Network Third Party Contractors Strong Distribution Network Gift Recommend- ations Fulfillment Center Stores Online Gift Center Gift Reminder Broad Assortment of Gifts High Quality of Flowers Rich Content Personalization Capabilities Popular Web Site Garden Works Integrated Partner Offers Telephone 3,000 Affiliates Plow & Hearth On-line Customer Service Widespread, Easy Access Great Foods Multiple Contact Points Franchise Stores Integrated on-line off-line systems Catalog Technology Strong Brand Name Wide Reach to Customers Customer Service Centers = On-line Activities & Assets SNAP Starmedia = Off-line Activities & Assets Integrated on-line off-line systems AOL MSN

1-800-Flowers Activity System
Both On-line Off-line Key Introduction of New Product Categories Electronic Greeting Cards Gift Recommendations Gift Reminder Program Broad Product Line Online Gift Center Address Book Nationwide Presence Florist Participation BloomNet Network Partnership With Associated Product Lines Company Off-Line Stores Company Franchise Stores MSN Multiple Customer Contacts Strategic Alliances On-Line BN In-Store AOL Alliance With Distribution Carrier Telephone Affiliate Programs Note: Source:

1-800-FLOWERS Value System
Address Book Gift Recommend- ations Online Gift Center Logistics Gift Reminder Broad Assortment of Gifts Fresh Flowers Sourcing Garden Works Product Partnerships Brand Name Telephone Plow & Hearth Online Reasonable Prices Widespread, Easy Access Great Foods Multiple Contact Points Stores Affiliates Logistics Bloomnet Network Media Partnerships = Core Benefits SNAP Starmedia = Actions AOL MSN = Capabilities

1-800-FLOWERS Value System
Address Book Gift Recommend- ations Online Gift Center Logistics Gift Reminder Broad Assortment of Gifts Fresh Flowers Sourcing Garden Works Product Partnerships Brand Name Telephone Plow & Hearth Online Reasonable Prices Widespread, Easy Access Great Foods Multiple Contact Points Stores Affiliates Logistics Bloomnet Network Media Partnerships = Core Benefits SNAP Starmedia = Activities & assets AOL MSN = Capabilities

Point-Counterpoint: Competencies Vs. Resource Systems

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

1-800-FLOWERS Partnerships
American Airlines® Advantage®, Delta Airlines SkyMiles®, United Airlines Mileage Plus Earn frequent flyer miles with FLOWERS.com purchases MCI Worldcom Receive FLOWERS.com gift certificates with long distance sign-up Receive 10% off every FLOWERS.com purchase with MCI WorldCom membership America Online First agreement signed in 1994 Exclusive marketer of fresh-cut flowers across key AOL brands until 2003 One-year exclusive agreement to market gardening products commencing Nov. 1999 Microsoft Networks Premier floral partner and anchor in the MSN Home and Garden Department Products, advertising and links featured on MSN Shopping Channel Snap.com One of the 45 premier merchants in Snap shopping service (on-line e-superstore) Anchor tenant in Snap.Com Flower Shop To be spotlighted in select Snap.com on-air promotions, scheduled to run on the NBC Television Network during the Valentine’s Day and Mother’s Day periods Source: FLOWERS.com website, WR Hambrecht & Co., TheStandard.com. Hoover’s Online

1-800-FLOWERS Partnerships (Cont.)
Markets flowers and other gifts through Excite.com and webcrawler.com web sites Products, advertisments and links featured in the Excite Shopping Channel Entered second year of marketing relationship in October 1999 Yahoo! Inc. Will run banner advertisements throughout the Yahoo! Network, with additional presence in shopping area StarMedia Network Developing Spanish and Portuguese language versions of FLOWERS.com web site People PC Signed one year agreement to become key floral and gift-provider for PeoplePC commencing October 1999 Zapa.com Offers selection of online greeting cards on FLOWERS.com web site Greeting cards never deleted by Zapa.com Users will be able to personalize greetings with their own photos, clip-art or other multi-media creations Sears, Roebuck and Company Licensing relationship which enables Sears customers to use their store charge cards when shopping with FLOWERS.com Source: FLOWERS.com website, WR Hambrecht & Co., TheStandard.com. Hoover’s Online

The Role of Partnerships
For flowers.com Portal Agreements America Online Microsoft Networks Yahoo! Inc. StarMedia Network Anchor Tenant Agreements Snap.com Sears, Roebuck, and Company Promotion Agreements American Airlines® Advantage®, Delta Airlines SkyMiles®, United Airlines Mileage Plus: Frequent Flyer Miles MCI Worldcom: Gift Certificates, 10% discount PeoplePC: Became key floral and gift provider Zapa.com: Offers greeting cards on flowers.com, allowing personalization

What are the Revenue Models Available to Firms?
Financial model that follows from the resource system 1) a review of the revenue models 2) 10 approaches to shareholder value models 3) growth models and how to pursue revenue growth

Types of Revenue Models
Advertising banners, interstitial, site sponsorships, event underwriting Product, Service, or Information Sales sales of goods on site Transaction revenue accrual from charging a fee or taking a portion of the transaction sum for facilitating a customer-seller transaction Subscription subscriber fees for magazines, newspapers, other information/service businesses

Types of Shareholder Value Models
Offline Over twenty profit models Online “blockbuster” profit model not movie generating, but franchising, transactional revenue, licensing, merchandising, and other revenue sources “base and follow-on” model primary product is a “loss leader” while real profit from follow-on products

Types of Shareholder Value Models...
Ten Internet Companies shareholder value models Differ from traditional valuations Shift from Profit to Shareholder-Value Focus market capitalization, rather than profit: share price times the number of shares outstanding Shift from Supply-Side Language to Demand-Side Language Significant finance gain (price of offering or price of of shares) result of what a company does to a market need Focus on core benefits a customer is looking for Introduce New Ways of Creating Value reflect evolution of the New Economy

Company and User Derived Both content and Value Added services Metamarkets Switchboard Buyers and sellers based upon customer activities to achieve goals Success Factors Building and sustaining a large number of buyers and sellers Frequently results in a single, large winner with multiple second-tier players Threat A higher level switchboard with more inclusiveness Traditional and Reverse Auctions Bidding up - traditional (e-Bay) Bidding down - often business-to-business until no further bids received Auction house takes transaction fees Often winner-take-all and strong brand name (Enron) Threats Alternative switchboards Loose brand credibility Emergence of pure low-price player

Category Switchboard Or category-killer type site Focus on one category More supply-side than demand-side driven Success factors Leverage network economics Building of customer base, with increasing switching costs Locked in due to increasingly useful customer profile, inter-user communications, and experience with the site Threats Emergence of metamarket player who rolls activities into a single site (eToys) Niche players chipping away at category (Sony Playstation) Brand name offline may be a challenge (ToysRUs)

Company Derived Value Creation “Best of class” excellence on a key customer need or benefit Best Information most timely, “freshest,” and most credible information product or service Forrester.com, salon.com, The Standard, zagat.com revenue form product as, services, information, advertising revenue profit from customer perception that the site is more accurate, credible, and timely information Success factors hiring best analysts and staff most timely and accurate information Threats Perception that others just as timely Price sensitivity to freshest information too great Cost for most timely information prohibitive

Widest Assortment breadth of product, service, and information coverage or inventory in the chosen product category CDNow.com, ArtistDirect.com, SecondSpin.com revenue derived from product sales, with selective premium pricing on the most desirable products Success Factors reducing customer uncertainty building a strong brand presence repeating buying and spreading word quality of additional information Inventory must be complemented with value-added services Threats further specialization in the product category megabrands attempt to aggregate consumers at a higher level

Lowest Prices promises lowest prices online maybe specific to a product category LowestFare.com, AllBooks4Less.com, buy.com Success Factors Margins minimal or non-existent, requiring strong back office systems Leverage scale economies Requires outstanding supply chain management, procurement, operational excellence Threats Emergence of shop bots (mySimon.com) Strong brand players who create uncertainty, creating niche players Lowest prices can always be tested my mySimon.com. There is no room for error under the lowest prices model.

Broadcast User Network pure demand based model relies on the fast buildup of the user network ICQ, RealNetworks.com, mercata.com, Mobshop.com Success factors building of strong customer base, customer's extent of viral marketing, trademarked software or patents Threats emergence of alternative standards fundamental technology shift backward or forward integration of complementary players

Best Experience Best experience regardless of price FAOSwartz.com, Ashford.com Revenue expected to originate from products, services, or information Profit maintained by premium prices across entire range of products Success factors Sourcing of best products Outstanding service A shift in customer preferences to brand labels Threats Emergence of lower priced offerings that have similar benefits Lack of perceived value in higher priced goods A shift to emergent brand labels, as compared to historic favorites

Most personalized Best customization of the consumer experience Reflect.com Success factors deep customer knowledge ability to continual refresh and mine the customer database consumer’s ability to feel complete ability to customize experience Threats Emergence of new players who offer a newer, richer, more personalized experience New technologies that displace older technologies that allow other companies to catch up and match the older company’s customer experience

Alternative Shareholder Value Models (Company and User Derived)

Alternative Shareholder Value Models (Company Derived)

Financial Growth Models
Third component of a financial model is the firm’s revenue growth strategy or growth model Revenue growth can come from a deeper penetration in the current market, new product development, nee market development, complete new products and markets

Revenue Growth Choices: 1-800-flowers
Gardenworks Plans to branch into a wide variety of product categories Greatfoods.com Plow & Hearth Home Decor New Plants Gourmet Treats In-Store Seminars Greeting Cards PRODUCTS Existing Corporate Gift Services Existing New Existing New ON-LINE MARKETS OFF-LINE MARKETS

What Business Classification Schemes are Appropriate for the New Economy?
Classification into “generic” business frameworks or taxonomies for better understanding Classification should have business-model-choice implications Porter Model Sawhney and Kaplan Model Rayport, Jaworski, and Siegel Model

Porter Generic Strategy Model
Classification schemes of basic generic strategies differentiation, cost, and niche Differentiation constant innovation and leadership on the benefits that matter most to customers maintain competitive cost Cost Gain competitive advantage on costs Maintaining some level of parity on differentiation Niche Focusing on particular market segment Pursuing then either cost or differentiation New Internet firms, some argue, can exhibit both cost and differentiation through technology

Point-Counterpoint: Does Profit Matter? Build Profit Or Build User Base?

Sawhney and Kaplan Model
Concept of electronic hubs (eHubs) Distinction between B-to-C an B-to-B hubs B-to-B Hubs Vertical vertical markets or specific narrow industry focus generally, possess deep industry specific knowledge and tend to lack business process expertise vertical: PlasticsNet.com, e-Steel Functional hubs common business functions generally, possess business-process expertise, tend to lack industry specific knowledge functional: Celarix.com (logistics management), Adauction (media buying) Horizontal hubs low ability to delivery industry specific content risk of becoming back-end service providers to vertical hubs

Sawhney and Kaplan — Classification of B-to-B Models
VERTICAL HUBS Paper Chemicals Plastics Steel Logistics Management Media Buying Advertising Energy Management FUNCTIONAL HUBS Source: Adopted from Business 2.0, September 1999, p.88

Rayport, Jaworski, and Siegal Model
RJS Model Describes sources of content origination along top axis products services, and/or information single or multiple sources Focus on business strategy along side axis back office or supply-chain improvement whether supply-side , or if customer focused on demand-side

RJS Model... Pure form business producers
Forward Integrated Producers focus on effectiveness or efficiency of supply chain Wal-Mart Supply-side Aggregators enhance effectiveness or efficiency of the supply chain do so by aggregating multiple supply-chain players Backward-Integrated User better serve through Web interface Forrester.com Demand-side Aggregators buyers groups News groups Mob.com (individual buying through group aggregation Many businesses pursue a hybrid of these models

SOURCES OF CONTENT ORIGINATION
RJS Model Summary SOURCES OF CONTENT ORIGINATION Single Brand Multiple Brands Supply-Side Demand-Side Hybrid Integrator (Cisco.com) Hybrid Aggregator (Amazon.com) Forward-Integrated Producer (Wal-Mart.com) Supply-Side Aggregator (Surplusdirect.com) Demand-Side Aggregator (Accompany.com) Backward Integrated User (Dellonline.com) - B2B FOCUS OF STRATEGY

Implications of “Pure Play” Business Approaches

Schwab’s Business Model
How the four components of Schwab’s business model “fit” the evolution of the market Value Cluster target segments primarily targets customers unwilling to pay for investment advice existing offline customers professionals, incomes less than $150K, trade frequently professionals, incomes less than $150K, buy and hold key benefit(s) innovative products superior service lower prices supportive rationale for better delivery to customer superior (“cutting edge”) technology

Schwab’s Business Model
The Marketspace Offering combination of products, services, and information Articulation of the scope category services in the financial services

On-Line Investment Process
Schwab Egg Diagram Schwab Learning Center Live Events Principles of Investing Understanding Market Cycles “Did You Know” Q&A Overall General Goal Planner Investor Profile Sample Investment Plans Retirement Retirement Planner IRA Analyzer Product Offering Estate Estate Tax and Probate Calculator Alternatives Comparison College College Planner Tax Tax Strategies IRS Withholding Calculator On-Line Investment Process Get educated about investing Online chat with Customer Service Representatives Customer Service via phone Customer Service via Customer Service at Branch My Watch List Plan investments Post Investment Support Overall Quotes and Charts Analyst Center Stocks and Options Stock Analyzer Bonds and Treasuries Schwab BondSource Services CDs and Money Markets SchwabOne Perform Research Margin Loans Money Transfers Automatic Investing Options Service After Hours Trading Account Protection Bill Payment Perform Investment Decide on Investment Annuities Schwab Select Annuity Life Insurance Insurance Needs Calculator Schwab Signature Services Schwab AdvisorSource Options Service Global Investing Service

The Schwab Resource System
Builds on value proposition and the egg diagram Benefits Lower prices Innovative products Superior service

The Schwab Financial Model
Revenue Model trading commissions principal transactions fees nontrading related activities mutual fund service fees net interest revenue interest on balances margins on lent funds

The Schwab Financial Model...
Value Model Profits through provider of the best information stock analysis, advice services OneSource mutual funds category switchboard Growth Model Development of advanced online software tools After-hours trading Future In-branch seminars New online trading center New online investment bank International expansion - online and offline

Schwab Resource System
Learning Center Onesource Invest in CSR Training Align CSR Compensation with Quality of Service Center of Knowledge and Innovation Customer Service Innovative Products Superior Service Hire IT Staff Investment in R&D Train IT Staff 24x7 Access Cutting Edge Technology Investment in IT System Reliability Partnerships with Content Providers Multiple Points of Access Optimize Staff in Branches Hoovers Online Lower Prices Streamlined Operations Charge For Value Added Services S&P Phone Media General Branch Provide Lower Commission for Frequent Traders Competitive Commission Rates = Core Benefits = Capabilities = Resources

Schwab Resource System...
Optimize Staff in Branches Lower Prices Train IT Staff Capable IT Staff 24x7 Access Media General S&P Hoovers Phone Branch Online Charge For Value Added Services Provide Lower Commission for Frequent Traders Innovative Products Center of Knowledge and Innovation Investment in R&D Cutting Edge Technology Investment in IT System Reliability Multiple Points of Access Hire IT Staff Competitive Commission Rates Streamlined Operations Learning Center Superior Service Partnerships with Content Providers Invest in CSR Training Align CSR Compensation with Quality of Service Well-Trained CSRs Onesource = Company needs to outsource or partner = Company can perform in-house

Schwab Activity System
Large investment in R&D Exceptional team of engineers Innovative products Increase in trade volume System able to handle large volume In-house technology development Low price Downsized branch staff Technology Leadership Investment in IT Increase in non-trade revenue 24 x 7 Customer service Large, well trained sales force Superior service High quality Investment Information Hoovers Online Multiple points of access Comprehensive information Partnerships with content providers S&P Comstock On-line Phone Branch Media General

Schwab Value Proposition
“Use technology to offer innovative products and superior service at lower prices to investors unwilling to pay for investment advice”

Partners Give/Get Matrix

Schwab Revenue Growth Choices
Advanced Software Tools After-hours trading International Expansion New International Expansion Learning Center In-Branch Seminars New Online Investment Bank PRODUCTS Existing Existing New Existing New ON-LINE MARKETS OFF-LINE MARKETS

Point-Counterpoint: Who Would You Rather Be
Point-Counterpoint: Who Would You Rather Be? A Dot-Com Or Brick-And-Mortar Business?

Business Model Choices Must Be Consistent With Sources of Competitive Advantage
Business Model Options (Not Mutually Exclusive) Forward-Integrated Producer Content Production eBusiness Interface Content Utilization Backward-Integrated User Content Production eBusiness Interface Content Utilization Content Production Content Production Supply Aggregator Content Production eBusiness Interface Content Utilization Content Production Content Production Content Production Content Utilization Content Utilization Demand Aggregator Content Production eBusiness Interface Content Utilization Content Utilization Content Utilization Content Utilization

Chapter 3 Business Models

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