1. Panel > Bled e-Commerce Conference > June 2004 The Business Model Concept and Information Systems BFSH1 - 1015 Lausanne - Switzerland - Tel. +41 21 692.3420 – alexander.osterwalder@hec.unil.ch - http://www.hec.unil.ch/aosterwa Université de Lausanne Ecole des Hautes Etudes Commerciales (HEC) Introduction Research question Origins, literature, evolution Research question The Business Model Ontology Elements & relationships XML application Product Value Proposition Example Customer Interface Channels Relationships Example Conclusion Table of content Alex Osterwalder, University of Lausanne alexander.osterwalder@hec.unil.ch http://www.hec.unil.ch/aosterwa http://businessmodels.blogspot.com

2. homehome | agenda | finUniversité de Lausanne 2 © 2004 Pigneur Agenda Research Question –Origins, literature and evolution of the concept –Research question The Business Model Ontology –Elements & Relationships –More formal approaches, e.g. XML Product –Value Proposition –Example Customer Interface –Channels –Relationships –Example Conclusion

3. homehome | agenda | finUniversité de Lausanne 3 © 2004 Pigneur Origins of the Term and Concept of Business Models Yearin titlein abstract in keywords in full text 20033015910667 2002221092617 2001111007609 200016671491 19993421262 19981190128 1997114066 1996014057 199504036 199402018 199305018 199202015 199101010 19900407 Occurrences of the term « business model » in peer-reviewed journals (in Business Source Premier) Occurrences of the term « business model » in business journals (in Business Source Premier) compared to the NASDAQ BUZZWORD or MEANINGFUL ARTIFACT?

4. homehome | agenda | finUniversité de Lausanne 4 © 2004 Pigneur Business Models in Literature: A Place of Confusion INDUSTRY ANALYSIS BUSINESS MODEL ANALYSIS Porter’s five forces model Apple: iTunes, iMode… Transaction Cost Economics

5. homehome | agenda | finUniversité de Lausanne 5 © 2004 Pigneur Research Question and Assumptions ASSUMPTIONS 1.The business model concept has the right granularity to study business design issues 2.If explicitly defined it should improve business design, management & innovation RESEARCH QUESTION 3.What does a reference model or ontology of business models look like - for subsequent modelling, design and visualization? specially meaningful in e-business situations A business model is a conceptual tool containing a set of objects, concepts and their relationships with the objective to express the business concept of a firm. It is a simplified description and representation of the business idea of a company – how it will make money DEFINITION

6. homehome | agenda | finUniversité de Lausanne 6 © 2004 Pigneur Evolution of Business Model Research define & classify business models list business model components describe business model elements model business model elements apply business model concept Rappa 2001 Timmers 1998 Linder & Cantrell 2000 Magretta 2002 Amit & Zott 2001 Afuah & Tucci 2001 Hamel 2000 Weill & Vitale 2001 Gordijn 2002 Osterwalder & Pigneur 2002 definitions & taxonomies "shopping list" of components components as building blocks reference models & ontologies applications & conceptual tools activity outcomes authors Modelling Rigour (towards a business model ontology) [Osterwalder and Pigneur, 2004, Clarifying Business Models: Origins, Present and Future of the Concept, Communications of the AIS]

7. homehome | agenda | finUniversité de Lausanne 7 © 2004 Pigneur Objectives of the Research: Formalize Business Models Build a model to... –Define –Seize –Describe –Store...the logic of what a firm does and how it does it Application bla formal modelmanagerseize unstructured information Semi – structured information formalization

8. homehome | agenda | finUniversité de Lausanne 8 © 2004 Pigneur computer- assisted tool Computer Aided Business Design/Engineering (CABD/CABE) Business Model Design & Communication (i.e. the drawing board) Business Plan Generation Measurement Systems (Balanced Scorecard) Visualization visualization Indicators/ measures requirementscommunication xyxy modelling & formalization layer application layer usage layer which model? which artefact? Has management improved? DESIGN SCIENCE

9. homehome | agenda | finUniversité de Lausanne 9 © 2004 Pigneur Modelling: The Business Model Ontology ChannelValue ConfigurationValue PropositionCapabilityCustomer LinkActivityOfferingResourceCriterion RelationshipPartnershipActor MechanismAgreement RevenueCostProfit PricingAccount INFRASTRUCTURE MANAGEMENT CUSTOMER INTERFACE PRODUCT FINANCIAL ASPECTS [Osterwalder and Pigneur, 2002, An e-Business Model Ontology for Modeling e-Business, Bled Electronic Commerce Conference] DESIGN SCIENCE

10. homehome | agenda | finUniversité de Lausanne 10 © 2004 Pigneur Computer Aided Business Design/Engineering (CABD/CABE) HTML Document SVG Document PDF Document Word Document e.g. a two page overview of a company’s business model e.g. a ten page report for a company’s business plan e.g. a detailed n- page description of the company’s business model e.g. a graphical view of a business model issue such as the channel strategy XML-based document management [Ben Lagha, Osterwalder and Pigneur, 2001, Modelling e-business with eBML, CIMRE, Tunisia] DESIGN SCIENCE

11. homehome | agenda | finUniversité de Lausanne 11 © 2004 Pigneur Modelling: The Business Model Ontology ChannelValue ConfigurationValue PropositionCapabilityCustomer LinkActivityOfferingResourceCriterion RelationshipPartnershipActor MechanismAgreement RevenueCostProfit PricingAccount INFRASTRUCTURE MANAGEMENT CUSTOMER INTERFACE PRODUCT FINANCIAL ASPECTS [Osterwalder and Pigneur, 2002, An e-Business Model Ontology for Modeling e-Business, Bled Electronic Commerce Conference] DESIGN SCIENCE

12. homehome | agenda | finUniversité de Lausanne 12 © 2004 Pigneur Value proposition Name 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) Value Proposition Offering setOfisA Target CustomersCapabilities What we offer? Target Customers Capabilities Value PropositionCapabilities Bird’s Eye View Offering 1 Target Customers Capabilities Value PropositionCapabilities Offering 2Offering 3Offering 4 Detailed View

13. homehome | agenda | finUniversité de Lausanne 13 © 2004 Pigneur Value Proposition Attribute – Reasoning on Value Use –When a value proposition mainly creates value through its usage, e.g. electricity Risk (reduction) –When a value proposition diminishes risks, e.g. derivative financial products, e.g. utility computing Effort –When a value proposition makes a customers life easier, e.g. online shopping, e.g. car leasing (financial effort)

14. homehome | agenda | finUniversité de Lausanne 14 © 2004 Pigneur Value Proposition Attribute – (Product) Life Cycle Creation –The moment the value is created, e.g. participatory sport shoe design (Web) Purchase –The moment the ownership of the value is obtained, e.g. one-stop-shopping Use –The moment the value is consumed, e.g. reading a book or turning on a light Renewal –The moment the value is renewed, e.g. software updates Transfers –The moment the value is transferred, e.g. recycling

15. homehome | agenda | finUniversité de Lausanne 15 © 2004 Pigneur Value Proposition Attribute – Value Level (how much?) Me-too –My value proposition is the same as others Innovative imitation –My value proposition is similar to others but with innovative elements Excellence –Create the most valuable customer experience Innovation –My value proposition is the completely new

16. homehome | agenda | finUniversité de Lausanne 16 © 2004 Pigneur Value Proposition Attribute – Price Level Attractive –I am cheaper than the market Market –I am priced like the market High-End –I am more expensive than the market

17. homehome | agenda | finUniversité de Lausanne 17 © 2004 Pigneur Offerings: easyMoney.com Illustration Offering setOfisA Target Customers Capabilities Value PropositionCapabilities offerings attributes

18. homehome | agenda | finUniversité de Lausanne 18 © 2004 Pigneur Application: The Value Map (Kambil et al. 1997) price value easyMoney.com free economy market high-end me- too Imitative innovation excellenceinnovation major credit cards Target Customers Capabilities Value PropositionCapabilities By seizing the value level and price level of the competitors on a certain market their competitive positioning becomes comparable and visualizable

19. homehome | agenda | finUniversité de Lausanne 19 © 2004 Pigneur Formalizing Customer Relationships Value Proposition iti n Distribution Channel Link Elementary Value Proposition Target Customer Criterion Relationship Mechanism Revenue Pricing Value Proposition Pricing CUSTOMER RELATIONSHIP BLOCK

20. homehome | agenda | finUniversité de Lausanne 20 © 2004 Pigneur Target Customers Value Proposition Target Customer Criterion setOf

21. homehome | agenda | finUniversité de Lausanne 21 © 2004 Pigneur Distribution Channels Value PropositionDistribution Channel Target Customer setOf Actor by Elementary Value Proposition Distribution Channel Link Reasoning Customer Buying Cycle Value Level Price Level isA

22. homehome | agenda | finUniversité de Lausanne 22 © 2004 Pigneur Visualizing Channels at Nokia Advertising of new mobile phone models Mobile phone catalogue Advertising of new Nokia and other mobile phones Phone subsidies by operators, in store sales force Promotion of state-of- the art Nokia equipment Mobile phone catalogueOnly Nokia USASupport, games, cartoons, ring tones Profile evaluator, phone comparison, product catalogue Support, games, cartoons, ring tones Nokia.com Nokia.xy (Country websites) Telecom operators Club Nokia (Web site per nation) Nokia Concept Stores AwarenessEvaluationPurchaseAfter sales Nokia Snowboard World cup, Beach volleyball Nokia Events Personalized support, games, ring tones, editors Qualified Nokia sales personnel In store sales of Nokia equipment In store sales of Nokia and other equipment Promotion of state-of- the art Nokia equipment Courses on the use of Nokia phone features Advertising of new mobile phone technology & models Purchase of games, images, ring tones Support Support, games, SMS, MMS, ring tones Nokia Academy Channels Links

23. homehome | agenda | finUniversité de Lausanne 23 © 2004 Pigneur Relationships Value Proposition Target Customer Relationship Mechanism setOf Relationship Elementary Value Proposition Distribution Channel Channel Link basedOn Personalization Trust Brand Acquisition Retention Add-on Selling

24. homehome | agenda | finUniversité de Lausanne 24 © 2004 Pigneur value GoalAcquisitionRetentionAdd-on selling Relationship description Orange tries to make new phone models affordable and tries to be present in the market as a young brand for communicating human emotions. Orange rewards loyalty and communications of its customers with points, which can be used to buy a new mobile phone or pay bills. Orange tries to make customers use data services, such as WAP, SMS and MMS as much as possible (especially teenagers). Name of the relationship mechanism Phone subsidiesOrange World portalHabbo HotelLoyalty pointsLocation based services SMS PublisherOrange Heartbreak Relationship mechanism description Orange pays a part of or the whole price of a new phone a customer wants to buy in exchange for a 12- month contract with Orange A portal that provides a mixture of news, sports, entertainment and mobile phone features, such as games. Customer login for Orange phone account management A virtual meeting place with public and private rooms where people can gather and chat, handle e-mail, instant messages and SMS’ -Location based services for places of interest, route planning, traffic and cinema guides A tool that allows customers to create their own SMS- channel to send information to channel-subscribers SMS-based services that allow (teen) customers to flirt anonymously by using their mobile phone ReasoningRisk: Minimizes the risk to be stuck with an expensive phone that is soon outdated. Use: Customers can afford the newest mobile phones with the newest phone features (e.g. MMS) Use: Provides customers and prospects with an information portal and mobile entertainment services. Allows customers to manage their phone account Use: Provides potential (teen) customers with a place to hang out and manage their e-mail, instant messages and SMS’. Risk: Minimizes the risk to be stuck with an expensive phone that is soon outdated. Use: Customers can afford the newest mobile phones with the newest phone features (e.g. MMS) Efforts: minimizes the efforts for finding useful and location-based information Use: Allows customers to send information to a list of people that are interested in the same topics (e.g. info for the members of a hobby soccer team) Use: Allows teenagers to resolve the most pressing problems of their age - love issues – without losing their face. Customer Buying Cycle EvaluationAwareness After Sales Value level/ price level Function-Brand -Personalization - ChannelOrange shopsInternet -Mobile phone - RetailersInternet Target customer All prospectsCustomers and prospectsTeen customers and prospects All current customersNomad customersActive teen customers Teen customers

25. homehome | agenda | finUniversité de Lausanne 25 © 2004 Pigneur Conclusion I: Evaluating Business Model Usage employees use of concepts use of tools trial & error defining indicators improving decisionmaking improving strategicplanning helping in the designof ISs increasing innovation improving processdesign improvingcommunication Retail over Internet3littlenoyesq1q2q3q4q5 Software in the mobile industry5littlenoyesq6q7q8q9q10 Service over Internet15no yesq11q12q13q14q15 Service in Finance31no q16q17 Internet Industry Platform80yesnoyesq18q19q20q21 Industry400yesno q22q23q24q25q26 Entertainment 10- 1200 no yesq27 Transport3'315no yesq28q29q30q31 Consultant 1yesno-q32 q33, q34 q35q36q37q38 Consultant 2yesno-q39q40q41q42q43 Consultant 3yesno-q44 green = positive answers, red = negative answers, grey = neutral answers, white = not answered q = quotes ability to create a transparent big picture creation of a commonly understood language helps addressing fundamental questions [Osterwalder and Pigneur, 2004, Investigating the Use of the Business Model Concept through Interviews, ICEB, Beijing] QUALITATIVE RESEARCH

26. homehome | agenda | finUniversité de Lausanne 26 © 2004 Pigneur Conclusion II We build Business Models in order to better understand business –What do I offer / to whom / how do I do this & with which partners be able to better understand how concepts are related –Navigate through different business perspectives and angles Build software-based business design tools –Computer assisted business engineering/design (CABE/CABD) Create new business model-based management tools –Management under uncertainty –Business Model comparison –Writing business plans

27. homehome | agenda | finUniversité de Lausanne 27 © 2004 Pigneur Questions or Demo