1. A framework for defining e-business models September 2002 Yves Pigneur HEC Lausanne yves.pigneur@unil.ch (+41 21) 692.3416

2. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 2 Agenda INTRODUCTION PRODUCT INNOVATION Value proposition CUSTOMER RELATIONSHIP Target customer Distribution channel (and intermediation) Customer equity Revenue & pricing INFRASTRUCTURE OPERATION Capabilities & resources Activity configuration Partnership Cost model CONCLUSION

3. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 3 IT Alignment BUSINESSINFORMATION TECHNOLOGY STRATEGIC FITAUTOMATIONLINKAGE FUNCTIONAL INTEGRATION INTERNAL EXTERNAL BUSINESS STRATEGYI/T STRATEGY ORGANIZATIONAL INFRASTRUCTURE AND PROCESSES IS INFRASTRUCTURE AND PROCESSES BUSINESS SCOPE DISTINCTIVE COMPETENCIES BUSINESS GOVERNANCE BUSINESS SCOPE TECHNOLOGY SCOPE I/T GOVERNANCE PROCESSES ARCHITECTURES SKILLS ADMINISTRATIVE INFRASTRUCTURE PROCESSES [Venkatraman, 1983]

4. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 4 What is a Business Model anyway? A buzzword with no precise definition ? –[…] Executives, reporters and analysts who use the term don't have a clear idea of what it means. They use it to describe everything from how a company earns revenue to how it structures its organization A business model is – the value a company offers to one or several segments of customers, and – the architecture of the firm and its network of partners – for creating, marketing and delivering this value and relationship capital, – in order to generate profitable and sustainable revenue streams.

5. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 5 Why a business model approach to e-strategy? Business Processes Information systems Business Model Strategy Planning level Architectural level Implementation level Conceptual architecture of a business strategy e-Business Technology layer Positioning Objectives & goals Communication of strategy Avoid re-inventing strategy

6. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 6 State of the Art - ontology The Enterprise Ontology –collection of terms and definitions relevant to business enterprises –Activities and processes, organization, strategy, marketing, time On-to-knowledge (XML) Content-driven Knowledge-Management through Evolving Ontologies Electronic Business (EDI) using XML –«To provide an open XML-based infrastructure enabling the global use of electronic business information in an interoperable, secure and consistent manner by all parties» Other EDI ontology: bizTalk, cXML, CBL Scénario

7. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 7 State of the Art – e-business models Categorization –According different axes (innovation, integration, control …) –Timmers, Rappa, Tapscott … Modeling –Concepts and questions –Hamel, Afuah, Linder Weill, Rayport, … Tools –Computer-aided design –MIT eBusiness Process Handbook (Malone)

8. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 8 State of the Art – business strategy (Un-)bundling the corporation –Product (What?), Customers (Who?), infrastructure (How?) –Hagel, Markides … Competence tree –Knowledge, strategy, value creation –Giget, … Value creation framework –value-creating activities result in offerings provided to customers –Ramirez, Wallin, Norman … WHAT WHO HOW Market Product Activities Capabilities

9. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 9 e-Business Model Framework (eBMF) Customer relationship Customer relationship Product innovation Product innovation Financial Aspects Financial Aspects Infrastructure operation Infrastructure operation WHO? Who are the customers? How to manage relationships with customers, satisfy them and generate revenues to be on the winning side? HOW? How to organize the resources and competencies? manage the value chain and processes? build alliances? to achieve performance? WHAT? What is the scope of products and services, its value and benefits for the customer? HOW MUCH? What is the revenue model? the profit model? The cost model, designed to last?

10. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 10 Value proposition Value Proposition Offering setOfisA Description Reasoning (use, risk, effort) Life cycle (creation, purchase, use, renewal, transfer) Value level (me-too, innovation/imitation, innovation) Price level (attractive, market, high-end) Categorization (barter, sale, market, buy) Target CustomersCapabilities What we offer? Product Innovation Product Innovation synonym: Benefice

11. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 11 Value proposition To characterize product innovation, the value proposition defines, the actual product or service, and the value or benefits perceived by customers of the products and services offered by the firm. In the case of e-business this offer naturally includes a strong information system component, principally the Internet.

12. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 12 Value proposition – Offerings Facilitate research –and reduced transaction costs Speed up distribution –particularly for digital goods (written, music, image, software) Improve the quality of service –by personalization, for example Improve facility and experience of buying –capitalizing on ludic aspects Improve the transparency of information –by opening up the information system Develop a sense of community –and improve the diffusion of knowledge, contacts and trust Bind complementary products ticketless Yield Management BarceloneLoterie Romande reservation easyCar Illustrations

13. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 13 Value proposition – Customer Service Life Cycle (CSLC)

14. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 14 Value proposition – Value and price levels [Kambil, 1997] Cost Performance Value frontier Concorde EasyJet Exec jet High-end Quality, comfort … Low cost (frequent flight, on-time schedule, service) Underperformer s Major airlines Me-too Innovation/imitation Innovation Attractive Market High-end

15. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 15 Value proposition – categorization Influence of seller lowhigh Influence of buyer lowhigh Electronic barter Electronic barter Swap Barter Alaxis Online sale Online sale Products: Amazon LeShop Brun Passot Services: AutoWeb E*trade easyJet aggregation: EMB Online buy Online buy Portals: AOL, Yahoo Zdnet Group buying: Cendant Mercata Accompany Pressure of seller Pressure of buyer competition cooperation Electronic market Electronic market search: Acses auction: eBay PriceLine Ricardo plate-form: TPN Register, linkom goFish POWER

16. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 16 Value proposition Illustration Online sale

17. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 17 Target customers Target customer Criterion setOfisA Value proposition Community Segment isA Who are our customers? Customer relationship Customer relationship Description Reasoning Categorization

18. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 18 Segment Categorizations of the population into social class or psychologically defined groups Area where a firm can specialize and gain competitive advantage –By having lower costs or customer-satisfying differentiation –Clear distinction –Limited set of competitors –Distinctive supply –Different purchase criteria –Barriers to deter new entrants Large organization Home User Market Small Business Medium Business SOHO

19. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 19 Community Group of people or entities –that share values or interests –and use the le Net regularly & at the same place transaction Business, trading, occasions, barter … interest Idea sharing, communication … fantasy Role games, fantasy world… relation Assistance (disease), sharing of experiences … [Hagel, 1997] Put pressure on sellers Meeting of sellers/buyers Target customers Buy Union (mass) Buy Union (mass) Market mix (informed) Market mix (informed) Barter New age (unselfish, elitist) Barter New age (unselfish, elitist) Sale target (spendthrift) Sale target (spendthrift) One-to-tribe marketing

20. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 20 Distribution channel Link setOfisA Target CustomersValue proposition Offering isA Internet Network isA Call center How we reach our customers? Feel and serve them? Actor by Description Reasoning Categorization

21. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 21 A channel can be defined as a set of links or a network via which a firm “goes to market” and delivers its value proposition. –Owned channels - direct (i.e. Web, phone, fax…) –Owned channels - indirect (i.e. brand shops) –Partner channels (intermediation i.e. retail, shops,...) More precisely it defines how a firm is “in touch” with its customers for a variety of tasks –Customer Buying Cycle (CBC) –Customer Service Life Cycle (CSLC) The purpose is to make the right quantities of the right products or services available at the right place, at the right time Distribution channel

22. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 22 Corporate Resellers Large organization Value Added Resellers Traditionnal Dealers Home User Organization focus End users Channels Market Small Business Medium Business Alternate Retail Needs SOHO Network Software PC's Periph. PreferencesBuying behaviour Programs Selection criteria ProductsTraining Procurement strategy Distribution strategy Distribution channel Illustration

23. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 23 Distribution channel – intermediaries AirlineTravel AgencyReservation S. 80% by Internet! Otopenia … Illustration [Klein, 2001]

24. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 24 Distribution channel – mix of links Promotion of authors and books Reading corners Coffee shops Sales person Cash registry (cash/credit card) Return books Banners to books etc. Search function Customer review Critics Excerpt Shopping cart checkout (Credit card) Order status Return books Transaction history Specialized affiliate Websites Expert commentaries Recommendation Free online courses Courses based on books etc. Mass advertising Illustration

25. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 25 Customer Relationship Relationship mechanism setOfisA … Target CustomersValue proposition Offering isA Retention Acquisition isA Add-on selling How we get and keep our customers? Trust Personalization isA Security

26. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 26 Customer equity Customer Acquisition –How do we get customers? –Growing market share Customer Retention –How do we keep customers? –Nurturing customer loyalty Add-on selling –How do we get customers to buy more? –Enhancing Average Revenue Per User (ARPU) In some mobile firms, customer acquisition costs had reached almost a quarter of all operating expenses said Mr Zehle, CEO of

27. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 27 Make recommendation PERSONALIZATION mechanisms 2 3 4a 5 4b Establish configuration Planing of production Listen to the customer Distribution CRM Production (internal) ERP Outsourcing (external) SCM One-to-one Mass-customization Collaborativ e filtering

28. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 28 TRUST & LOYALTY mechanisms TRUST SECURITY PRIVACY Contribute to the establishment of BRAND Notoriety … Fear: financial losses Fear: loss of intimacy INFO- MEDIARYCOMMUNITY Certification Verification et authorization Escrow Notary, payments Expertise Guarantee of quality Rating Reputation of actors Insurance Risk management Contribute QUALITY

29. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 29 Revenues and pricing Revenue Pricing setOfisA Target CustomersValue proposition Offering for What are our revenues? Our pricing? Description Reasoning Categorization Link

30. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 30 Revenue models – categorization REVENUE one time recurrent sale registry subscription advertisement use Income of the subscription fees to become a member Paid by the buyer and/or the vendor transaction commission Income, percentage of a transaction made by the settlement (affiliate program) Income of online sales paid by the buyer Income of the ad banners posted on the shopfront Paid by the vendor Phone registry subscription Usage Time Services combination

31. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 31 Trends towards dynamic and online pricing Based on –catalog –negotiation between the seller and the buyer –auction –request for proposal (RFP) « good bye to fixed pricing » ? –Suppliers enjoy price differenciation in order to avoid comparison –Customers enjoy low price and gaming using comparison Yield Management Allows to calculate in real time (online if on the Internet) the best prices for maximazing the profit generated by the sales based on a forecasting model of sale behavior (for micro-segments) [Klein, 2000]

32. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 32 Illustration upload images Print of images Delivery of items Marketing of product services Printing infrastructure Packing staff ColorMailer Website enablesvalue for Activities Resources Partners required perform Infrastructure operation Infrastructure operation Infrastructure operation

33. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 33 Capabilities and resources Capability Resource setOfisA Value proposition What are our key competencies? Actor by Description Reasoning Categorization

34. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 34 Capability –Repeatable patterns of action in the use of assets –Aptitude to exploit and coordinate resources –to create, produce, and/or offer products and services to a market Resource –Assets that are available & useful –in detecting and responding to –market opportunities or threats [Wallin, 2000] OWN DO Capabilities and resources IBM

35. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 35 Online Gift Center Integrated Partner Offers Broad Assortment of Gifts Custome r Service Wide Reach to Customers Widesprea d Easy Access Multiple Contact Points Popular Web Site High Quality of Flowers Technology Strong Brand Name Strong Distribution Network [Rayport, 2001] Capabilities Illustration = Capabilities = Core Benefits

36. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 36 Capabilities – categorization [Wallin, 2000] & Synocus external internal customersresources Related to business processes Related to management processes (decision) Business modeling capability Absorptive capacity Conceptualizing timing

37. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 37 Value configuration Activity setOfisA Value propositionCapabilities Resource Fit Flow Sharing Value shop Value chain isA Value network How we operate and deliver? Actor by Description Reasoning Categorization

38. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 38 [Revaz, 1995] Value configuration Illustration

39. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 39 Value chain, shop & network [Stabell, 1998] categorization

40. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 40 Value chain, shop & network [Stabell, 1998] Illustration Value chain Value shop Value network

41. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 41 Partnership Agreement setOfisA Value propositionCapability Activity on Market Chain isA Network How we collaborate? Actor by Description Reasoning Categorization

42. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 42 Production cost Coordination cost low high [Malone, 1993] Partnership – categorization CHAIN manufacturersupplierretailerdistributorbuyer product MARKET Author marketing Author marketing Distributor inventory Distributor inventory sales Information systems coordination contents sales Information systems coordination contents Shipping transport tracking Shipping transport tracking Affiliate sales Affiliate sales Customer buy content Customer buy content Bank payment Bank payment deliver order sale order sales critics Credit cardclearance returns NETWORK

43. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 43 Costs Cost Account setOfisA What are our costs? Description Reasoning Categorization

44. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 44 Costs Revenues Total net revenue Cost of goods sold Total Costs of goods sold Gross margin Total Costs of goods sold Operating expenses research and development sales and marketing general and administration Total operating expenses Operating income (loss) Income (loss) before tax Net income (loss) PROFIT = (P – V C ).Q – F C Pthe unit price of a product V C the variable cost of a unit Qthe number of products sold F C fixed costs

45. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 45 e-Business Model Framework (eBMF) ChannelCustomerPropositionConfigurationCapability LinkCriterionOfferingActivityResource Cost Account Revenue Pricing Partnership Agreement Relationship Mechanism Actor isa flow fit share Product Innovation Product Innovation Infrastructure operation Infrastructure operation Customer relationship Customer relationship Financial aspects Financial aspects Profit

46. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 46 Customer relationship Customer relationship Product innovation Product innovation Financial Aspects Financial Aspects Infrastructure operation Infrastructure operation Model & document (XML) DEFINE

47. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 47 Balanced scorecard (BSC) & Intangible Assets Monitor Customer perspective Customer perspective Innovation perspective Innovation perspective Financial perspective Financial perspective Internal perspective Internal perspective How do the customers perceive us? In which process do we have to prove excellence? How to improve our services and our quality? How do shareholder perceive us? CUSTOMER GoalsMeasures & initiatives INNOVATION Goals Measures & initiatives FINANCE Goals Measures & initiatives PROCESSES Goals Measures & initiatives MEASURE [Kaplan, 1992]

48. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 48 System dynamics SIMULATE Customer relationship Customer relationship Product innovation Product innovation Financial Aspects Financial Aspects Infrastructure operation Infrastructure operation

49. Université de Lausanne SYLLABUSSYLLABUS | AGENDA | FINAGENDA FIN © 2002, Pigneur Business model 49 Questions http://inforge.unil.ch/yp/Talk/oois2002.htm