Digital Business Models PDF (Summer Semester 2024)

Digital Business Models (Module No. 1403) Summer Semester 2024 In the next chapter we will discuss digital ecosystems, starting with a general introduction, followed by a number of case...

Digital Business Models (Module No. 1403) Summer Semester 2024 In the next chapter we will discuss digital ecosystems, starting with a general introduction, followed by a number of case studies. V.A.0. OUTLINE OF THIS MODULE I. Introduction to Business Models  Concept and characteristics  Value capturing & value creation models II. Digital Business Fundamentals  Key terms and characteristics  Segmentation & framework for analysis III. Basic/ Core Models  Electronic commerce models  Content(-driven) and service models IV. Platform Models  Marketplaces and crowdsourcing  Service platforms and social networks V. Ecosystems  Consumer-/ End-user-oriented  Business-oriented/ industrial VI. Back-End/ Enabling Models  Cloud computing/ XaaS  Asset managers Source: own work Nils Madeja Page 17  Digital Business Models (Module No. 1403) Summer Semester 2024 Interestingly, the importance of ecosystems and relation to digital platforms are also recognized in art. V.A.2. CONTEMPORARY ART ON THE DIGITAL SPACE Sources: ruangrupa artist collective, documenta fifteen Nils Madeja Page 19  Digital Business Models (Module No. 1403) Summer Semester 2024 The term "ecosystem" [Greek οἶκος = "house"] originated in biology/ ecology, where it has been employed to describe… V.A.3. ORIGINAL DEFINITION OF AN ECOSYSTEM FROM BIOLOGY/ ECOLOGY Observations from the lake ecosystem example:  Spatially limited/ con- fined, not endless  Shared "media" (air, water, ground)  Variety of "players" and "approaches"/ "models"  Common "interest"  Relationships range from mere coexistence to di- rect (hostile) "interactions"  No (dominant) central control, self-organizing …"a biological community of interacting organisms and their physical environment." Source: US State of Georgia Dept. of Natural Resources; definition from Stevenson as cited in ref. [5.1] Nils Madeja Page 21  Digital Business Models (Module No. 1403) Summer Semester 2024 The ecosystem concept has been applied to (digital) business in a multitude of ways, each highlighting different aspects. V.A.4. APPLICATIONS OF THE ECOSYSTEM (ES) CONCEPT TO (DIG.) BUSINESS Business ES  "Various […] actors complementing […] each other’s capabilities" (e. g. auto ind.)  "Dynamic or steered through a pivotal actor" Platform ES  Boundary resources, e. g. API, SDK, or IDE, as enablers (e. g app stores)  "External innovation and third-party contributions" Service ES  "Service providers, consumers, and composition developers" (e. g web serv.)  "Continuous integration of various resources", "ongoing change" Innovation ES  Various stakeholders share knowledge and skills to jointly co-create (e. g. centers)  Focus on value creation instead of value capturing (busin. ES) Software ES  Shared technological platform such as standard software (e. g. OS/ ERP)  New software and services generated through interaction Note: These are different theoretical lenses to look at the same set of phenomena. Source: adopted from [5.1] Nils Madeja Page 22  Digital Business Models (Module No. 1403) Summer Semester 2024 Jacobides et al. have proposed a definition for the ecosystem concept that is rather parsimonious and needs explanation. V.A.5. DEFINITION OF "ECOSYSTEM" IN THE (DIGITAL) BUSINESS CONTEXT "An ecosystem is a set of actors with varying degrees of multilateral, nongeneric complementarities that are not fully hierarchically controlled." It helps to reflect on the more specific applications to fully understand this. Sources: adopted from [5.3] Nils Madeja Page 23  Digital Business Models (Module No. 1403) Summer Semester 2024 Various characteristics of (digital) business ecosystems have been identified. V.A.6. CHARACTERISTICS OF (DIGITAL) BUSINESS ECOSYSTEMS Some of them are common, some are different across ecosystems. Source: adopted from [5.1] Nils Madeja Page 24  Digital Business Models (Module No. 1403) Summer Semester 2024 Ecosystems can be viewed as an extension or generalization of platform models. V.A.7. DISTINGUISHING ECOSYSTEMS FROM PLATFORM MODELS Platform models Ecosystems  One, two or several communities  Several or many communities of users/ of users/ roles various roles  One business model, supported  Several business models, possibly several by one technology platform technology platforms  Relationships and interactions  Broad spectrum of relationships possible, coupled to one central hub interactions in various ways (also indirectly)  Fully controlled by a central player  Not fully controlled by any one player; there may (pivotal actor) central control be several influential players  Somewhat generic, typically  Unique structure that has evolved around the several direct competitors platform of a certain (single) company They have typically evolved from a certain platform and become somewhat unique. Source: own work Nils Madeja Page 25  Digital Business Models (Module No. 1403) Summer Semester 2024 A research model has been developed to study the parties, their relationships, and mechanisms in digital platform ecosystems. V.A.8. RESEARCH MODEL FOR DIGITAL PLATFORM ECOSYSTEMS Key terms:  Supermodularity: "supermodu- lar complementarity, an increased amount of Product A makes Product B more valu- able", e. g. apps and app store  Generativity: "overall capacity to produce unprompted changes driven by large, varied, and uncoordinated audiences”  Affordances: "what an individual or organization with a particular purpose can do with a technology" Sources: adopted from [5.2] Nils Madeja Page 26  Digital Business Models (Module No. 1403) Summer Semester 2024 The following questions will help you take a deeper dive into the subject of (digital) business ecosystems. STUDY QUESTIONS FOR GROUP WORK AND DISCUSSION IN CLASS 1. What is the practical relevance of the (digital) business ecosystems? Why is the study of this topic relevant to you as master's students? 2. Sketch the structure of the following types of (digital) business ecosystems from different industries or industry segments: a. Auto industry b. App store c. Operating system What differences to platform models do you notice? How would you assess the scalability of these types of ecosystems? 3. What (strategic) questions arise for companies with respect to (digital) business ecosystems? Explore their choices! How do these depend on company size? That will help you appreciate the complexity of the subject. Source: own work Nils Madeja Page 27  Digital Business Models (Module No. 1403) Summer Semester 2024 In today's session we will first continue our general introduction to digital ecosystems and then discuss a number of case studies. V.A.0. OUTLINE OF THIS MODULE I. Introduction to Business Models  Concept and characteristics  Value capturing & value creation models II. Digital Business Fundamentals  Key terms and characteristics  Segmentation & framework for analysis III. Basic/ Core Models  Electronic commerce models  Content(-driven) and service models IV. Platform Models  Marketplaces and crowdsourcing  Service platforms and social networks V. Ecosystems  Consumer-/ End-user-oriented  Business-oriented/ industrial VI. Back-End/ Enabling Models  Cloud computing/ XaaS  Asset managers Source: own work Nils Madeja Page 3  Digital Business Models (Module No. 1403) Summer Semester 2024 The degree of openness is a key strategic variable to be carefully selected when developing digital ecosystems. V.B.1. DEFINITION OF OPENNESS IN THE CONTEXT OF ECOSYSTEMS "A platform is ‘open’ to the extent that: (1) restrictions are not placed on participation in its development, commercialization or use; and (2) any restrictions – for example, requirements to conform with technical standards or pay licensing fees – are reasonable and non-discriminatory, that is, they are applied uniformly to all potential platform participants." Openness starts with the platform(s) from which it affects/ governs the ecosystem. Source: adopted from [5.5] Nils Madeja Page 7  Digital Business Models (Module No. 1403) Summer Semester 2024 The degree of openness is reflected by several of the differentiating characteristics of ecosystems. V.B.2. OPENNESS AND ECOSYSTEM CHARACTERISTICS I. e. ecosystems may vary considerably in their degree of openness. Source: adopted from [5.1] Nils Madeja Page 8  Digital Business Models (Module No. 1403) Summer Semester 2024 The degree of openness needs to be determined for four basic groups of actors/ players who form an ecosystem. V.B.3. BASIC ACTORS/ PLAYERS IN A (DIGITAL) BUSINESS ECOSYSTEM Note the role of the technology platform as the core for business models and the evolving ecosystem. The fundamental question is: Who of these may participate and to what extent? Source: adopted from [5.8] Nils Madeja Page 9  Digital Business Models (Module No. 1403) Summer Semester 2024 A lesson from history: Pursuing a more open approach helped Facebook increase its reach and eventually overtake Myspace… V.B.4. DAILY REACH OF FACEBOOK VS. MYSPACE FROM 2005 TO 2007 …, which until then had been the leading social network. Source: adopted from [0.4] (original English version by the authors) Nils Madeja Page 10  Digital Business Models (Module No. 1403) Summer Semester 2024 Examples of computing ecosystems show that their key actors take different approaches with respect to openness. V.B.5. COMPUTING ECOSYSTEMS WITH VARYING DEGREES OF OPENNESS For discussion: How is openness related to the commercial success of the key actors? Source: adopted from [5.5] Nils Madeja Page 11  Digital Business Models (Module No. 1403) Summer Semester 2024 When the key actor of a dominant ecosystem takes a too restric- tive – i. e. closed – approach (along with other practices)… V.B.6. ANALYSIS: SITUATION OF EUROPEAN PRODUCERS IN LARGE ES …producers/ contributors – and consumers, eventually – are at a disadvantage. Source: adopted from [5.6] Nils Madeja Page 12  Digital Business Models (Module No. 1403) Summer Semester 2024 This insight has motivated the European Commission to trigger legislative action: the Digital Markets Act, which… V.B.7. EU DIGITAL MARKETS ACT: EXPLANATION IN PROSE …explicitly aims to regulate the key actors of dominant ES (labeled "gatekeepers"). Source: web site of the European Commission; [link embedded here] Nils Madeja Page 13  Digital Business Models (Module No. 1403) Summer Semester 2024 Apart from lobbying for regulatory support, producers/ contributors do have options to push back on… V.B.8. STRATEGIES FOR PRODUCERS Develop own  Use "business-in-a-box" (or whitelabel) solutions, e. g. Shopify channel  "Multi-home", i. e. enlist in several large platforms  Use large platforms as showrooms for limited offering, then try to build direct customers relationship in fulfillment process (e. g. include flyers, coupons in delivery) Focus own  "Going deep": focus on/ specialize in certain goods or services activities  "Going broad": offer certain competence to other producers Turn to others  Team up with other producers and boycott large platform(s) for support  Take legal actions against key actors (platforms) …key actors (platforms) of dominant ecosystems. Source: own depiction based on [5.7] Nils Madeja Page 14  Digital Business Models (Module No. 1403) Summer Semester 2024 Similarly to platform models, ecosystems can be categorized according to the key customer segment(s) served. V.C.1. SEGMENTATION OF ECOSYSTEMS BY TARGET CUSTOMERS Consumers/  Amazon end users  Apple  Meta/ Facebook  Alphabet/ Google  Alibaba  Tencent/ WeChat Businesses/  Adamos Industrial users  Gaia-X  […] The challenge is that there may be various customer groups in an ecosystem. Source: own work Nils Madeja Page 16  Digital Business Models (Module No. 1403) Summer Semester 2024 Please take some time to conduct case studies of several digital business ecosystems. STUDY QUESTIONS FOR GROUP WORK AND DISCUSSION IN CLASS 1. Based on the following materials, analyze the ecosystems that have evolved around the following famous Internet/ digital giants (key/ pivotal actors): a. Amazon Sketch the structure of b. Apple the respective c. Meta/ Facebook ecosystem, including d. Alphabet/ Google all relevant actors. 2. Summarize the historic development of each case: How, in what steps has the original business model evolved into an ecosystem? 3. Which is/ are the key platform model(s) in the present? 4. Monetization: What are the key sources of revenue and profit nowadays? 5. Governance: How and to what extent does the key pivotal actor exercise control? You will understand why we have left these companies out of our previous discussions. Source: own work Nils Madeja Page 17  Digital Business Models (Module No. 1403) Summer Semester 2024 Amazon started as a e-tailer/ online retailer for books in 1995… V.C.2.1. AMAZON: HUMBLE BEGINNINGS Founder Jeff Bezos in his 1999 office First book sold on Amazon in 1995 …and developed into a platform with the launch of its marketplace in 2000. Source: adopted from John Wainwright/ Quora (as shown by The Atlantic, Inc.), steemKR Nils Madeja Page 18  Digital Business Models (Module No. 1403) Summer Semester 2024 Over the following 20 years, Amazon has evolved into a diversi- fied ecosystem, with its own companies covering a broad range… V.C.2.2. SNAPSHOT OF AMAZON'S ECOSYSTEM …of services to consumers but also to business customers as other contributors. Source: adopted from Benjamin Talin, MoreThanDigital Nils Madeja Page 19  Digital Business Models (Module No. 1403) Summer Semester 2024 Correspondingly, Amazon's revenue structure has diversified, with its XaaS offering Amazon Web Services (AWS)… V.C.2.3. AMAZON'S EARNINGS STRUCTURE AND THE IMPORTANCE OF AWS …contributing only some 12% of revenues but 59% of the operating income. Source: adopted from tableau public Nils Madeja Page 20  Digital Business Models (Module No. 1403) Summer Semester 2024 Apple started out as a device manufacturer…with home computers in the 1970s. V.C.3.1. HISTORICAL ROADMAP OF APPLE PRODUCTS Apple gradually worked its way upward through the software and service stack. Source: adopted from students' presentation in summer semester 2021 Nils Madeja Page 21  Digital Business Models (Module No. 1403) Summer Semester 2024 The Apple ecosystem now spans a broad range of business models and offerings. V.C.3.2. SKETCHES OF THE APPLE ECOSYSTEM Particularly, it integrates a huge number of partners (complementors). Source: adopted from Giles Crouch (LinkedIn) and students' presentation in summer semester 2021 Nils Madeja Page 22  Digital Business Models (Module No. 1403) Summer Semester 2024 As a premium brand with a strong market position, Apple achieves an impressive gross margin – both in absolute and relative figures. V.C.3.3. APPLE'S FINANCIALS: GROSS MARGIN 2018-2020 IN US$ MN. AND % Note the high profitability of the services – twice as high as of products! Source: adopted from students' presentation in summer semester 2021 Nils Madeja Page 23  Digital Business Models (Module No. 1403) Summer Semester 2024 Facebook was originally launched as a directory and networking site for Harvard students… V.C.4.1. FACEBOOK AT THE TIME OF THE LAUNCH (FEB. 4, 2004) …and slowly opened up to students from other universities. Source: adopted from students' presentation in summer semester 2021 Nils Madeja Page 24  Digital Business Models (Module No. 1403) Summer Semester 2024 Meta has developed a complex ecosystem around its core platform Facebook, which continues to play an important role. V.C.4.2. OVERVIEW OF THE META ECOSYSTEM Note the offering serving businesses – the focus has shifted since the early days. Source: adopted from students' presentation in summer semester 2021 Nils Madeja Page 25  Digital Business Models (Module No. 1403) Summer Semester 2024 Meta's key messaging services serve as separate channels for advertising (outbound) and collecting user data (inbound)… V.C.4.3. USAGE STATISTICS FOR META'S KEY MESSAGING SERVICES …which can be aggregated to comprehensive user profiles in the back end. Source: BroadbandSearch; https://www.broadbandsearch.net/blog/average-daily-time-on-social-media Nils Madeja Page 26  Digital Business Models (Module No. 1403) Summer Semester 2024 The starting point for the development of the Google ecosystem was Google's search engine business as the core model. V.C.4.1. GOOGLE: SEARCH ENGINE BUSINESS MODEL Btw, it took quite a while to establish and implement this model. Source: adopted from Gary Fox; https://www.garyfox.co/google-business-model-explained/ Nils Madeja Page 27  Digital Business Models (Module No. 1403) Summer Semester 2024 An ecosystem spanning a broad range of businesses and tech- nologies has evolved around Google, which was facilitated… V.C.4.2. OVERVIEW OF THE ALPHABET/ GOOGLE ECOSYSTEM … by establishing Alphabet as a holding ("umbrella") structure. Source: adopted from Mark Kalin; https://mark-kalin.com/the-alphabet-inc-ecosystem/ Nils Madeja Page 28  Digital Business Models (Module No. 1403) Summer Semester 2024 Despite the breadth of activities, Google's revenue is still dominated by its advertising business. V.C.4.3. GOOGLE: REVENUE STRUCTURE 2020 YouTube serves as the second major advertising channel. Source: adopted from students' presentation in summer semester 2021; based on Alphabet annual report 2020 Nils Madeja Page 29  Digital Business Models (Module No. 1403) Summer Semester 2024 Alibaba is a Chinese Internet conglomerate that grew around an online marketplace. V.C.6.1. ALIBABA'S HISTORY AT A GLANCE (SIMPLIFIED TIMELINE) The structure and development of its ecosystem shows similarities to Amazon's. Source: adopted from students' presentation in summer semester 2021 Nils Madeja Page 30  Digital Business Models (Module No. 1403) Summer Semester 2024 Trading remains at the core of the Alibaba ecosystem, and it has been complemented in many areas. V.C.6.2. OVERVIEW OF THE ALIBABA ECOSYSTEM The Ant group, focusing on financial services, can be viewed as an ecosystem in itself. Source: adopted from students' presentation in summer semester 2021 Nils Madeja Page 31  Digital Business Models (Module No. 1403) Summer Semester 2024 Alibaba's revenues top US$ 100 bn. V.C.6.3. ALIBABA'S FINANCIAL PERFORMANCE 2010 TO 2021 IN RMB/ CNY BN. The company has been profitable for years. Source: adopted from students' presentation in summer semester 2021 Nils Madeja Page 32  Digital Business Models (Module No. 1403) Summer Semester 2024 Tencent is a another Chinese Internet conglomerate; it evolved from two instant messaging platforms. V.C.7.1. TENCENT'S HISTORY AT A GLANCE (SIMPLIFIED TIMELINE) WeChat replaced QQ as the key platform. Source: adopted from students' presentation in summer semester 2021 Nils Madeja Page 33  Digital Business Models (Module No. 1403) Summer Semester 2024 Tencent's revenues exceed US$ 74 bn and matches those of worldwide industry leaders in certain segments. V.C.7.2. TENCENT'S REVENUES IN US$ 74 BN., COMPARISON BASED ON Q2 2020 Yet, due to its regional focus, Tencent is not very known among European consumers. Source: adopted from students' presentation in summer semester 2021 Nils Madeja Page 34  Digital Business Models (Module No. 1403) Summer Semester 2024 Tencent has established a comprehensive portfolio of services, covering all needs of Chinese internet users. V.C.7.2. TENCENT'S "INTERNAL ECOSYSTEM" OF OPERATING COMPANIES Users can manage large parts of their life without having to leave the ecosystem. Source: adopted from students' presentation in summer semester 2021 Nils Madeja Page 35  Digital Business Models (Module No. 1403) Summer Semester 2024 Additionally, Tencent has made financial investments in more than 700 companies, among them many Western companies. V.C.7.3. TENCENT'S "EXTERNAL ECOSYSTEM" OF SHAREHOLDINGS Tencent has thereby diversified its portfolio…and extended its sphere of influence. Source: adopted from students' presentation in summer semester 2021 Nils Madeja Page 36  Digital Business Models (Module No. 1403) Summer Semester 2024 Adamos (ADAptive Manufacturing Open Solutions) was a marketplace for digital products for the manufacturing industry. V.C.8.1. CASE STUDY: ADAMOS – CONCEPT Simply speaking, it was an "app store for industrial machines and devices". Source: adopted from students' presentation in summer semester 2021 Nils Madeja Page 37  Digital Business Models (Module No. 1403) Summer Semester 2024 Participating manufacturing companies pay for platform access, app use (licenses), and individual services. V.C.8.2. ADAMOS SERVICES AND PRICING MODEL The platform has been established by an industrial consortium, not by a third party. Source: adopted from students' presentation in summer semester 2021 Nils Madeja Page 38  Digital Business Models (Module No. 1403) Summer Semester 2024 With Adamos, manufacturing companies (bottom ctr.) could ob- tain plant equipment and compatible digital products (i. e. apps). V.C.8.3. OVERVIEW OF THE ADAMOS ECOSYSTEM That helps them better serve their customers (bottom right). Source: adopted from students' presentation in summer semester 2021 Nils Madeja Page 39  Digital Business Models (Module No. 1403) Summer Semester 2024 Gaia-X a framework comprising a reference architecture and a set of rules and standards for the free exchange of data in Europe. V.C.9.1. GAIA-X – A FEDERATED AND SECURE DATA INFRASTRUCTURE Its purpose is to strengthen European companies by giving them data sovereignty. Source: adopted from students' presentation in summer semester 2022 and references named therein Nils Madeja Page 40  Digital Business Models (Module No. 1403) Summer Semester 2024 Gaia-X is driven by more than 300 members and 1800 contributors cooperating in several working groups. V.C.9.2. GAIA-X – ACTORS AND ORGANIZATION Source: adopted from students' presentation in summer semester 2022 and references named therein Nils Madeja Page 41  Digital Business Models (Module No. 1403) Summer Semester 2024 In contrast to other platform ecosystems, Gaia-X is governed in an open approach. V.C.9.3. GAIA-X – GOVERNANCE The idea is not to monetize the use of the framework itself. Source: adopted from students' presentation in summer semester 2022 and references named therein Nils Madeja Page 42