2. Business Models Chapter 4 McGraw-Hill/Irwin
Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

3. Chapter 4: Business Models
Questions answered in this chapter:
What are the four components of an online business model?
Do firms compete on value propositions or value clusters?
What are the approaches to developing an online offering, whether the business is providing a product, service, or information?
What is a successful, unique resource system? What are the characteristics of good resource systems?
What are the revenue sources available to firms?

4. Exhibit 4-1: Components of a Business Model
Value Cluster
Online Offering
Resource System
Financial Model

5. Value Propositions and Value Clusters
Value Proposition-requires management to specify three things:
Target segment
Focal customer benefits
Key resource that give market advantage
Value Cluster- value proposition consisting of a cluster of composed of three parts:
Choice of target customer segments
Particular focal combination of customer-driven benefits
Rationale for why this firm and its partners can deliver the value cluster in a significantly better way than competitors

6. Value Propositions and Value Clusters (cont’d)
Choice of Segments
Market size and growth rates
Unmet or insufficiently met customer needs
Weak 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

7. 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 believable?
Is it perceived as unique or indistinguishable from other propositions or clusters?
Will it provoke action on the part of the target customer?

8. Quality of a Value Proposition or Cluster
Company Criteria.
Will the organization “rally around” the proposition or cluster?
Does the company have the resources or capabilities to own this cluster?
Will it block or facilitate the eventual move to additional vertical markets?

9. Quality of a Value Proposition or Cluster
Competitive Criteria.
Are other competitors trying to hold a similar proposition or cluster?
Can current or future competitors match this cluster?
How easy is it for future competitors to match this cluster?

10. The Online Offering Scope of the Offering
Category-Specific Dominance-Companies that focus exclusively on one product category, such as flowers.
Cross-Category Dominance- The extension of product offerings from a single category to additional product categories, such as Amazon.com.

11. Exhibit 4-2: Customer Decision Process — Flower Example
Disposal
Loyalty
Satisfaction
Purchase Decision
Evaluation of Alternatives
Information Search
Problem Recognition
PREPURCHASE
PURCHASE
POSTPURCHASE

12. Exhibit 4-3: Egg Diagram for 1-800-Flowers.com
Gift reminder service
Holiday specials
Everyday celebration suggestions
Special occasion suggestions
Ideas and Information
“Care and handling”
“Do it yourself”
Special events and educational workshops held at stores
Floral ideas
Garden ideas
Home ideas
Gift ideas
Gourmet ideas
Store locator
Recommendations by budget
Bestsellers
Flower / Gift Decision Process
Need Recognition
Product Offering
Gift Recommendations
Education on Flowers and Decoration
Search for Ideas and Offerings
Birthday Gift Central
Gift by occasion
Gift by price
Monthly gift clubs
Corporate gift services
Post-Sales Support
Order receipt
Q&A chat
FAQ
Customer service inquiry form
Post-Sales Support and Perks
Evaluation of Alternatives
Product price
Product picture
Product description
Delivery information
Delivery availability
Perks
Miles earned with flower purchases
Free gifts
Discounts at AOL & BN.com 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
Physical cards in gifts
a bouquet
Source: Adapted from Mohanbir Sawhney, “Making New Markets,” Business 2.0 (May 1999): 116–21.

13. 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 resources to benefits
Shift from single to multifirm systems

14. Specifying a Resource System
Step 1: Identify core benefits in the value cluster
Step 2: Identify resources that relate to each benefit
Step 3: Identify to what degree the firm can deliver each benefit
Step 4: Identify partners who can complete resources

15. Exhibit 4-4: 1-800-Flowers.com Resource System
Strong Distribution Network
Online Gift Center
Broad Assortment of Gifts
High Quality of Flowers
Popular Website
Integrated Partner Offers
Core Benefits
Customer Service
Widespread
Easy Access
Multiple Contact Points
Technology
Strong Brand Name
Wide Reach to Customers
= Core Benefits
=Resources

16. Criteria to Assess the Quality of a Resource System
Uniqueness of the system
Links between resources and benefits
Links among resources in the system
Links among resources
Links between virtual world and physical world business systems
Sustainable advantage

17. Exhibit 4-5 : Online/Offline 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 servifce 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

18. 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.)

19. Revenue Models
Advertising- Earning revenue through the selling of ads (banner or interstitial), site sponsorships, event underwriting, or other forms of communication
Product, Service, or Information Sales- Income generated from the sale of goods on the site
Transaction- Revenue accrued from charging a fee or taking a portion of the transaction sum
Subscription- Revenue generated through subscriber fees for magazines, newspapers, or other information/service businesses
License Fees- Revenue generated from licensing of content

20. Online Business Models
Metamarket Switchboard Model
Traditional and Reverse Auction Models
Freshest-Information Model
Highest-Quality Model
Widest-Assortment Model
Lowest-Price Model
Most-Personalized Model

21. Exhibit 4-6: Summary of Online Business Models

22. 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)

23. Marketwatch.com Business Model (cont’d)
Supportive Rationale
Experienced editorial staff with financial expertise
Infrastructure allowing access from multiple forms of media
Credibility through its association with CBS News

24. Exhibit 4-7: MarketWatch.com Egg Diagram
Planning Tools
Sharebuilder
Payment Calculator
Home Price Check
Best Credit Card Rates
Insurance QuickQuote
Learn
Getting Started
Investor’s Primer
IPO Basics
Financial Term Glossary
Breaking News
Online
News Watch
Alerts
Real-time Headlines
Hotstock Tracker
Marketwatch Live
eSignal
Radio
Contribution to Westwood One
Television
CBS MarketWatch Weekend
Contributions To:
CBS Early Show
CBS Evening News
CBS NewsPath
Personal Finance Process
Learn About Personal Finance
Plan Investment Strategy
Stay Updated on the Latest News and Figures
Develop Insight
Invest
Track Investments
Track Investments
Portfolio View
Portfolio Analyzer
Portfolio Allocation
Portfolio Tracker
Market Figures
Futures and Options
Futures Contracts
After-Hours Futures
Bonds
Bellwether Bonds Report
Funds
Fund Profile
Fund Charts
Stocks
Interactive Charting
Historical Charts
Global Markets
Key Rate Snapshot
International Indexes
Non-Us Stocks
US Markets
Market Monitor
Major Indexes
Dollar Volume Leaders
Invest
Sponsorships by Online Brokerages
Datek Online
Fidelity Investments
National Discount Brokers
Ameritrade
Cybertrader
Scottrade
Broker Decision Center
Develop Insight
Third-Party Sources
Market Guide
Hoover’s Online
Multex
Annual Reports Club
INVESTools
Over 250,000 Investment Research Reports
Community
Private
People Watch
Hot Discussions
Occasional Polls
Commentary
Thom Calandra’s Stockwatch
Bambi Francisco’s Net Sense
Bezderick on Bonds
(Many other commentary columns)
eNewsletters

25. Marketwatch.com Business Model (cont’d)
Resource System
CBS News
Financial Times
Marketwatch.com
BigCharts.com
Content partners (Hoovers, Zacks, INVESTools, etc.)
Distribution partners (Yahoo, AOL, Quicken, etc.)

26. Exhibit 4-8: MarketWatch.com Resource System
International
Presence
Distribution
Partnerships
Up-to-the-Minute Information
Partnerships with
Content Providers
Multiple Points of Access
Available
Infrastructure
Credible Analysis and Personal Finance Tools
Association
with CBS
Experienced
Editorial Staff
CORE BENEFITS
=Core Benefits
=Resources

27. Marketwatch.com Business Model (cont’d)
Revenue model
Advertising revenue (37% in 2001)
Licensing revenue (52% in 2001)
Other revenue, subscription, etc. (6% in 2001)
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

28. Exhibit 4-9: Partners Give / Get Matrix

29. Exhibit 4-10: MarketWatch.com’s Revenue Distribution