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Digital Business Models (Module No. 1403) Summer Semester 2024 The fourth chapter addresses platform models: following an intro- duction, we will discuss marketplaces and crowdsourcing...

Digital Business Models (Module No. 1403) Summer Semester 2024 The fourth chapter addresses platform models: following an intro- duction, we will discuss marketplaces and crowdsourcing models. IV.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  Social networks and aggregator models 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 Platform models have evolved from basic/ core models, representing the next level of complexity. IV.A.1.1. SEGMENTATION OF DBM FOR THE PURPOSES OF THIS MODULE Ecosystems are the most complex and may involve multiple groups of users/ participants; various business relationships possible between the groups Platform Models are more complex and depend on attracting and managing communities of users (user base); typ. business relationships: N-to-N or N-to-M Basic/ Core Models represent the least complex and oldest digital busi- ness models; typical business relationships: 1-to-N Back-End/ Enabling Models vary in complexity; often invisible to consumers, they serve as building blocks for other business models, providing technology or service components A typical platform keeps developing with its community of users (user base). Sources: own work Nils Madeja Page 4  Digital Business Models (Module No. 1403) Summer Semester 2024 As the term "platform" is used frequently, it is important to distinguish the technology- from the business perspective. IV.A.1.2.1. TECHNOLOGY AND BUSINESS PERSPECTIVES ON PLATFORMS  Generally: "Establishing, providing, and managing a site for the exchange of contacts, goods, or services between third parties"; "attracting and Business managing third parties (community of users, user base)" (model)  In the digital context: virtual site; online exchange of information perspective (goods); offline fulfillment for physical components (deliveries)  "Facilitating third-party transactions and monetizing them"  Generally: concepts (principles and building blocks) supporting the modu- lar development of products (e. g. automobiles) or services (e. g. insurance Technology plans) – "enabling product/ service variety on a common base" perspective  In the digital context: an IT system (HW and/ or SW) based on which applications and/ or services can be implemented and operated – on the Internet typically: "offering functionality for a broader user base" Not every (digital) technology platform enables/ empowers a platform business model! Source: own work Nils Madeja Page 5  Digital Business Models (Module No. 1403) Summer Semester 2024 A technology platform provides common functionality, connec- ting users and enabling them to build and run applications. IV.A.1.2.2. TECHNOLOGY AND BUSINESS PERSPECTIVES ON PLATFORMS (or users) A digital business platform needs a digital technology platform at its base. Source: illustration adopted from [4.1] Nils Madeja Page 6  Digital Business Models (Module No. 1403) Summer Semester 2024 Platform models can be segmented by the number of sides – communities or user groups – they serve. IV.A.1.3. TYPES OF PLATFORM MODELS BY DIVERSITY OF THE USER BASE One-sided platform Two-sided platform Multi-sided platform  One community of users,  Two communities of  Several communities of all in the same role users/ two roles users/ several roles  Common interest/  Differing (conflicting?)  Variety of interests/ goals: shared goal interests/ goals common … conflicting  E. g. fans of a band,  E. g. buyers and sel-  E. g. different groups in players of a game lers in a marketplace an ecosystem  Challenge: monetizing a  Challenge: balancing  Challenge: achieving/ "stand alone" community the two communities maintaining system health  Early approach, often com-  Special case of the  Often specific for a bined with another model multi-sided platform certain (single) company Depending on the segment, they need to be managed – and monetized – differently. Source: own work Nils Madeja Page 7  Digital Business Models (Module No. 1403) Summer Semester 2024 There is a variety of relevant topics for research and practice along the lifecycle of digital platforms. IV.A.1.4. (RESEARCH) TOPICS ON DIGITAL PLATFORM MODELS Initiation Growth Implications  Starting point (offer/  Network effects  Market power and user base) (direct, indirect) negotiating positions  Building a critical  Adding sides/ com-  Competition user base munities of users between platforms  Monetization  "Platform hygiene": (crowding out) approaches security, trust, truth-  Regulation of  Accompanying/ fulness, quality, etc. platforms supporting offerings  […]  Transition to  […] ecosystems  […] Understanding and managing their complexity and dynamics is a central issue. Source: own work Nils Madeja Page 8  Digital Business Models (Module No. 1403) Summer Semester 2024 Growth of a platform is driven by network effects – forces that amplify each other and drive "the flywheel in the middle"… IV.A.1.5. JEFF BEZOS' NAPKIN SKETCH (FLYWHEEL DIAGRAM) FOR AMAZON …ideally as a virtuous circle, i. e. leading to more and more growth. Source: Jeff Bezos, September 2001; adopted from zentail.com Nils Madeja Page 9  Digital Business Models (Module No. 1403) Summer Semester 2024 Network effects can also be negative – in which case they also amplify each other but "in the wrong direction"… IV.A.1.6. DAVID SACKS' NAPKIN SKETCH FOR UBER …acting in a vicious circle, they counteract growth and may even shrink the platform. Source: David Sacks; adopted from [0.4] Nils Madeja Page 10  Digital Business Models (Module No. 1403) Summer Semester 2024 There are several strategies for initiating platform growth, i. e. overcoming the "chicken-or-egg dilemma". IV.A.1.7. STRATEGIES FOR INITIATING PLATFORM GROWTH "Follow-the-rabbit"  Build demo based on an existing (own) non-platform success "Piggyback"  Connect an existing user base from a different platform "Seeding"  Act as the first producer, create offering for user base yourself "Marquee"  Provide incentives to attract members of a certain type "Single side"  Create business with one user group, then add another “Prod. evangelism"  Attract producers, let them persuade their customers to join "Big bang adoption"  Use traditional opportunistic push marketing to attract attention "Micromarket"  Target a tiny market where members are already interacting After taking off, a platform can grow further by "going viral". Source: adopted from [0.4] and Sangeet Paul Chaudary's INSEAD blog (accessed June 10, 2021) Nils Madeja Page 11  Digital Business Models (Module No. 1403) Summer Semester 2024 Same as for every business model, two fundamental questions must be answered for monetizing platform models. IV.A.1.8. OPTIONS FOR PLATFORM MONETIZATION Charge whom? (Customers?) Charge for what and how?  All users/ whole user base  Transaction, e. g. fraction of  Part of the user base and subsi- transaction volume as a fee dize the rest, e. g. one side in a  Market access, e. g. one time or two-/ multi-sided platform recurring fee (subscription)  Almost all users/ whole user base,  Extended functionality (freemium but subsidize certain "stars", e. g. model), e. g. fee for preferential influencers or key contributors placement or certain content/ services  Almost all users/ whole user base,  Curated offering, e. g. subscription but subsidize price-sensitive user in exchange for preselected or groups, e. g. students quality-checked content/ services The transition from a free offering to one with charges is a very(!) delicate issue. Source: own depiction based on [0.4] Nils Madeja Page 12  Digital Business Models (Module No. 1403) Summer Semester 2024 IV.A.1.9. ADDITIONAL REFERENCES [4.1] Löwen, U.; Madeja, N. et. al.: Digital Platforms in Manufacturing Industries – Plattform Industrie 4.0 Result Paper; available online at https://www.plattform- i40.de/PI40/Redaktion/DE/Downloads/Publikation/digital-platforms-in-manufacturing- 2021.html; accessed May 27, 2021. Nils Madeja Page 13  Digital Business Models (Module No. 1403) Summer Semester 2024 The following questions will help you analyze the business model of one-sided platforms. STUDY QUESTIONS FOR GROUP WORK AND DISCUSSION 1. [Recap:] What are the prerequisites for the user base of a one-sided platform? 2. Name examples of one-sided platforms (i. e. specific companies). 3. What constitutes the (added) value of a one-sided platform for its users? 4. What is the challenge of monetizing a one-sided platform, e. g. regarding… − Possible customers/ customer groups, − Their willingness to pay, and − The platform's growth dynamics? 5. What would be the consequence if a one-sided platform (or its operating company) charged fees from some users only (or from no users at all)? The answers show why one-sided platforms are not very common. Source: own work Nils Madeja Page 14  Digital Business Models (Module No. 1403) Summer Semester 2024 From an economic perspective, the business model of a one- sided platform is quite simple: There is only one… IV.A.2.1. BUSINESS MODEL OF ONE-SIDED PLATFORMS (EXTERNAL VIEW) Flow of goods or services Flow of money Value capturing model Value creation model (Comprises flow of information) Platform Users company …stakeholder group – that of the users, who are also the customers. Source: own work Nils Madeja Page 15  Digital Business Models (Module No. 1403) Summer Semester 2024 From the point of view of an individual user, the value of a one- sided platform consists of access to the existing user base... IV.A.2.2. BUSIN. MODEL OF ONE-SIDED PLATFORMS (EXTERNAL, USERS' VIEW) Flow of goods or services Flow of money Value capturing model Value creation model (Comprises flow of information) Individual Platform Remaining user company user base... as well as the opportunity to interact with the other users. Source: own work Nils Madeja Page 16  Digital Business Models (Module No. 1403) Summer Semester 2024 The following questions will help you analyze the business model of digital or electronic marketplaces. STUDY QUESTIONS FOR GROUP WORK AND DISCUSSION 1. Name examples of digital or electronic marketplaces (i. e. specific companies). 2. What user segments do marketplaces target? 3. What orientations (purposes) can marketplaces have? 4. Who are the customers of a marketplace? How do marketplaces differ from other two-sided platforms in this regard? 5. What constitutes the (added) value of a marketplace for its customers (or participants)? And how does a marketplace grow? 6. How does pricing *) work on marketplaces? What are the options? 7. What scope of services do marketplaces provide? 8. With what/ on what (pricing models) can a marketplace earn money? 9. How can the marketplace model be extended to three or even more sides? Marketplaces constitute a special subcategory of two-sided platforms. Source: own work *) of the merchandise, not of the marketplace access/ use Nils Madeja Page 17  Digital Business Models (Module No. 1403) Summer Semester 2024 In the first part of today's session we will finish our discussion of marketplaces and study crowdsourcing models. IV.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  Social networks and aggregator models 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 Marketplace models match supply and demand by establishing 1:1 business relationships between its platform participants. IV.A.3.1. MARKETPLACE MODELS Goods/  C2C: Trading/ Brokering (e. g. ebay, etsy, …) Material  B2B: Sourcing/ Procurement (e. g. alibaba, Mercateo, …)  […] People/  Recruiting (e. g. monster, Upwork, TaskRabbit, …) Labor  Dating/ Matchmaking (e. g. OkCupid, Badoo, Parship, …) *)  […] Money/  Peer-to-peer lending (e. g. Auxmoney, Fellow Finance, Smava …) Capital  Stock exchanges and online brokerages  […] Depending on the resource traded, the platform needs to provide facilitating services. Source: own work *) To be discussed: one-sided or two-sided? Nils Madeja Page 4  Digital Business Models (Module No. 1403) Summer Semester 2024 The basic business model of a marketplace connects buyers and sellers, then facilitates a transaction between them. IV.A.3.2. BASIC BUSINESS MODEL OF A MARKETPLACE Flow of goods or services Flow of money (Comprises flow of information) Market- place Buy side Sell side Buyer Seller Note: The degree to which the marketplace facilitates the transaction may vary – from moderating (arranging/ setting the rules) to mediating (acting as a service provider in between, e. g. for payment and fulfillment). Value is generated on either side; it can also be captured on either side (with fees). Source: own work Nils Madeja Page 5  Digital Business Models (Module No. 1403) Summer Semester 2024 As these consumer-oriented examples show, marketplaces typically monetize transactions by imposing transaction fees on the seller. IV.A.3.3. PRICING MODELS OF TWO PROMINENT C2C-MARKETPLACES  No fee for up to 320 offers per month (above: € 0,50 per offer)  Sales provision: − Fixed fee: € 0,35 (€ 0,05 for order values below € 10) − Variable fee: 11% of order value (2% in excess of € 1,990) [Note: Different fees may apply to certain product categories]  Separate fees for additional options  Slotting fee of US$ 0,20 per offer  Sales provision: − No fixed fee − Variable fee: 6,5% of order value  Separate fees for additional options They generate additional revenues from further (optional) services. Source: German web sites of the respective companies; the logos are their exclusive trademarks Nils Madeja Page 6  Digital Business Models (Module No. 1403) Summer Semester 2024 A multitude of marketplaces has evolved in different segments. IV.A.3.4. "MARKETPLACE LANDSCAPE DACH 2022" B2B-marketplaces typically target a specific industry (as "verticals") or niche. Source: ecom consulting, “THE MARKETPLACE WORLD 2022” Nils Madeja Page 7  Digital Business Models (Module No. 1403) Summer Semester 2024 Marketplaces can be ranked according to different criteria… IV.A.3.5. THE WORLD’S TOP B2C-MARKETPLACES 2023 …e. g. monthly visits, GMV traded, number of participants, size of offering… Source: Jake Pool, webretailer, "The World’s Top Online Marketplaces 2023" Nils Madeja Page 8  Digital Business Models (Module No. 1403) Summer Semester 2024 Crowdsourcing models break down a large undertaking or request into small pieces, distribute these to their user base… IV.A.4.1. CROWDSOURCING MODELS Goods/  Computing power (e. g. SETI@home, Folding@home, …) Material  […] People/  Crowdworking (e. g. Figure Eight, clickworker, …) Labor  Open innovation (e. g. Agorize, innocentive, …)  […] Money/  Crowdfunding/ ‐investing (e. g. Kickstarter, seedmatch, Capital companisto, …)  […] …(1:N relationships), collect the results/ contributions, and aggregate them. Source: own work Nils Madeja Page 9  Digital Business Models (Module No. 1403) Summer Semester 2024 A crowdsourcing platform acts as a distributor in one direction ( crowd) and as an aggregator in the other ( customer). IV.A.4.2. CROWDSOURCING BUSINESS MODEL Flow of goods or services Flow of money Value capturing model Value creation model (Comprises flow of information) Customer Crowd Crowd- (for goods, (many in- sourcing labor or dividual platform capital) users) Managing and cultivating a suitable crowd (skills, capacity) is a key success factor. Source: own work Nils Madeja Page 10  Digital Business Models (Module No. 1403) Summer Semester 2024 Several types of crowdfunding/ ‐investing models can be distinguished. IV.A.4.3. SEGMENTATION OF CROWDFUNDING/ -INVESTING MODELS They differ in the kind of consideration the investors receive in return for their money. Source: adopted from students' presentation in summer semester 2021 Nils Madeja Page 11  Digital Business Models (Module No. 1403) Summer Semester 2024 Fundraising via a crowdfunding/ ‐investing platform is a process that can take a few months until closing (i. e. receiving the money). IV.A.4.4. TYPICAL FUNDRAISING PROCESS FOR CROWDFUNDING/ ‐INVESTING Afterwards, the funded team needs to cultivate its investor relations. Source: adopted from students' presentation in summer semester 2021 Nils Madeja Page 12  Digital Business Models (Module No. 1403) Summer Semester 2024 Kickstarter is a (or the most?) prominent crowdfunding platform with a long history and large community. IV.A.4.5. CASE STUDY: KICKSTARTER – OVERVIEW AND KEY STATISTICS Note that – even on this platform – only a minority of projects gets funded. Source: adopted from students' presentation in summer semester 2021 Nils Madeja Page 13  Digital Business Models (Module No. 1403) Summer Semester 2024 Arguably the most famous project funded on kickstarter was a smartwatch, which was heavily oversubscribed. IV.A.4.6. MOST(?) FAMOUS PROJECT ON KICKSTARTER Some companies use crowdfunding platforms to advertise their new products. Source: adopted from students' presentation in summer semester 2021 Nils Madeja Page 14  Digital Business Models (Module No. 1403) Summer Semester 2024 Various crowdfunding/ ‐investing platforms have evolved in the different segments. IV.A.4.7. CROWDFUNDING/ -INVESTING PLATFORM EXAMPLES Consequently, they target different types of projects. Source: adopted from students' presentation in summer semester 2021 Nils Madeja Page 15  Digital Business Models (Module No. 1403) Summer Semester 2024 The following questions will further your understanding of crowdsourcing business models. STUDY QUESTIONS FOR GROUP WORK AND DISCUSSION 1. What drives the value of crowdsourcing platforms for its users/ participants? 2. What are the challenges in developing and managing crowdworking platforms? 3. How can crowdworking leverage or be leveraged by AI platforms? 4. Discuss possible implications of crowdworking models on the labor market. 5. What are the challenges in developing and managing crowdfunding platforms? 6. Discuss potential risks and returns for crowdinvestors. (What are typical investment terms?) 7. What is the market impact of crowdsourcing platforms? In the present and in the future? Crowdsourcing platforms make up another subsegment of two-sided platforms. Source: own work Nils Madeja Page 16  Digital Business Models (Module No. 1403) Summer Semester 2024 In the second part of the fourth chapter and today's session we will investigate service platforms and social networks. IV.B.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 Social networks  Service platformsand andaggregator models 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 Service platforms build offerings based on participants' busi- ness activities and can be roughly grouped in two segments. IV.B.1.1. SEGMENTATION OF SERVICE PLATFORMS  Own customer interface Aggregators  Comprehensive value creation: service provider's brand is of little importance to customer, must meet minimum require- ments; platform exercises strong control over fulfillment  E. g. virtual transport operators (e. g. Uber, Lyft, …)  Own customer interface Coordinators  Limited value creation: customer knows service provider's brand; platform exercises limited control over fulfillment  E. g. food ordering and delivery platforms (e. g. Lieferando, Delivery Hero, Wolt, …) The depth of their respective value creation (marketing and enabling activities) varies. Source: own work Nils Madeja Page 18  Digital Business Models (Module No. 1403) Summer Semester 2024 Similar to marketplaces, service platforms match service providers with customers and facilitate the fulfillment. IV.B.1.2. BUSINESS MODEL OF SERVICE PLATFORMS Flow of goods or services Flow of money Value capturing model Value creation model (Comprises flow of information) Service platforms Custo- Service mers providers Note: Aggregators control the fulfillment and serve custo- mers under their own brand; whereas coordinators preserve the brands of their service providers. The stronger their own brand, the less visibility they give to the service providers. Source: own work Nils Madeja Page 19  Digital Business Models (Module No. 1403) Summer Semester 2024 Ride-Hailing (or -Sharing) platforms like Uber or Lyft match drivers and their vehicles with riders (passengers). IV.B.1.3. SERVICE PLATFORM EXAMPLE: RIDE-HAILING (-SHARING) Source: https://www.trefis.com/no-login- required/0JGaYTVV The platforms exercise a high degree of control; their brands dominate the CX. Source: adopted from students' presentation in summer semester 2021 Nils Madeja Page 20  Digital Business Models (Module No. 1403) Summer Semester 2024 Similarly, freight forwarding platforms such as Sennder match carriers' unused trucking capacity with shippers (freight). IV.B.1.4. SERVICE PLATFORM EXAMPLE: FREIGHT FORWARDING Intelligent routing is a key competence, as routes are long and trucking costs are high. Source: Sennder pitchdeck, NOAH17 Berlin Nils Madeja Page 21  Digital Business Models (Module No. 1403) Summer Semester 2024 Food ordering and delivery platforms connect restaurants and customers; their commissions vary depending on delivery. IV.B.1.5. SERVICE PLATFORM EXAMPLE: FOOD ORDERING AND DELIVERY 90% of orders 10% of orders Platform service Platform service Own delivery Delivery service by service Lieferando 13% commission 30% commission The restaurant names (brands) are typically visible to customers. Source: adopted from students' presentation in summer semester 2021 Nils Madeja Page 22  Digital Business Models (Module No. 1403) Summer Semester 2024 The following questions will help you analyze the business model of social networks (SN). STUDY QUESTIONS FOR GROUP WORK AND DISCUSSION 1. How can social networks be roughly segmented? Name examples of specific companies for each segment. 2. Sketch the business model of social networks. Does the model vary depending on the segment? If so, how? 3. What constitutes the value(-add) of a social network for its customers (or participants)? What are important resources and competencies in this regard? 4. Describe the pricing models employed by social network companies. 5. From a business perspective, what kind of participant/ user behavior should an SN-company strive to achieve? Describe related techniques and measures. What effects/ what impact do these (often) have on participants/ users? 6. Describe the competition between social networks. What happened to losers? Social networks represent another prominent category of two-sided platforms. Source: own work Nils Madeja Page 23  Digital Business Models (Module No. 1403) Summer Semester 2024 Social networks can be roughly (!) segmented into those for users' personal and those for their professional context. IV.B.2.1. SEGMENTATION OF SOCIAL NETWORKS Personal/ pri-  Addressing users as private individuals vate ("B2C")  Help users build and manage personal relationships  E. g. sharing personal interests and experiences, exchanging hobbies, maintaining friendships  […] Professional  Addressing users in their business/ professional role ("B2B")  Help users build and manage professional relationships  E. g. for self-marketing/ job search, recruiting and organizing educational programs  […] Although their "look-and-feel" is different, they share common mechanisms. Source: own work Nils Madeja Page 24  Digital Business Models (Module No. 1403) Summer Semester 2024 In the first part of today's session we will continue and conclude our discussion of social networks. IV.B.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 Social networks  Service platformsand andaggregator models 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 following questions will help you analyze the business model of social networks (SN). STUDY QUESTIONS FOR GROUP WORK AND DISCUSSION IN CLASS 1. How can social networks be roughly segmented? Name examples of specific companies for each segment. 2. Sketch the business model of social networks. Does the model vary depending on the segment? If so, how? 3. What constitutes the value(-add) of a social network for its customers (or participants)? What are important resources and competencies in this regard? 4. Describe the pricing models employed by social network companies. 5. From a business perspective, what kind of participant/ user behavior should an SN-company strive to achieve? Describe related techniques and measures. What effects/ what impact do these (often) have on participants/ users? 6. Describe the competition between social networks. What happened to losers? Social networks represent another prominent category of two-sided platforms. Source: own work Nils Madeja Page 4  Digital Business Models (Module No. 1403) Summer Semester 2024 Social networks can be roughly (!) segmented into those for users' personal and those for their professional context. IV.B.2.1. SEGMENTATION OF SOCIAL NETWORKS Personal/ pri-  Addressing users as private individuals vate ("B2C")  Help users build and manage personal relationships  E. g. sharing personal interests and experiences, exchanging hobbies, maintaining friendships  […] Professional  Addressing users in their business/ professional role ("B2B")  Help users build and manage professional relationships  E. g. for self-marketing/ job search, recruiting and organizing educational programs  […] Although their "look-and-feel" is different, they share common mechanisms. Source: own work Nils Madeja Page 5  Digital Business Models (Module No. 1403) Summer Semester 2024 The basic business model of a social network for personal/ pri- vate use resembles that of the user-generated content model. IV.B.2.2. BASIC BUSINESS MODEL OF A SOCIAL NETWORK FOR PERSONAL USE Flow of goods or services Flow of money Value capturing model Value creation model (Comprises flow of information) Ad Users Social (vertising) ("pro- network customers sumers") Note: Idealized depiction – in reality, the boundary between ad customers and users can get blurred as the former may also contribute content as professional users. Users generate page impressions (qualified by their profiles!) that are sold to advertisers. Source: own work Nils Madeja Page 6  Digital Business Models (Module No. 1403) Summer Semester 2024 In the back-end, advertisers can configure, book, and monitor/ control their campaigns. IV.B.2.3. SELF-SERVICE PROCESS FOR ADVERTISERS IN A SOCIAL NETWORK It is a self-service ("low touch") and highly automated process  very scalable. Source: adopted from students' presentation in summer semester 2021 Nils Madeja Page 7  Digital Business Models (Module No. 1403) Summer Semester 2024 Facebook is the world's leading social network. IV.B.2.4. CASE STUDY: FACEBOOK – OVERVIEW AND KEY STATISTICS It serves a huge user base of over 2 billion. Source: adopted from students' presentation in summer semester 2021; *) in Q1 2020 Nils Madeja Page 8  Digital Business Models (Module No. 1403) Summer Semester 2024 Advertisers can book campaigns based on reach (traditional approach) or performance/ effectiveness. IV.B.2.5. CASE STUDY: FACEBOOK – OFFERING FOR ADVERTISERS They set the parameters for their campaigns, which the platform executes. Source: adopted from students' presentation in summer semester 2021 Nils Madeja Page 9  Digital Business Models (Module No. 1403) Summer Semester 2024 Tiktok is another social network for personal/ private use; it is based on user-generated short videos. IV.B.2.6. CASE STUDY: TIKTOK – OVERVIEW AND KEY STATISTICS Its user engagement is similar to Facebook's ("stickiness", "selling attention"). Source: adopted from students' presentation in summer semester 2021 Nils Madeja Page 10  Digital Business Models (Module No. 1403) Summer Semester 2024 Not surprisingly, the offering for advertisers and the backend process is quite similar to Facebook's. IV.B.2.7. CASE STUDY: TIKTOK – OFFERING FOR ADVERTISERS Performance metrics (esp. CPA) have been adjusted to the content format (videos). Source: adopted from students' presentation in summer semester 2021 Nils Madeja Page 11  Digital Business Models (Module No. 1403) Summer Semester 2024 The business model of a social network for professional use is more complex than that of a social network for private use. IV.B.2.8. BUSINESS MODEL OF A SOCIAL NETWORK FOR PROFESSIONAL USE Flow of goods or services Premium Value capturing model Value creation model Flow of money users All Users (Comprises flow of information) Ad Social custo- network mers Content/ Recrui- service ters providers There are several customer groups, one of which is premium users. Source: own work Nils Madeja Page 12  Digital Business Models (Module No. 1403) Summer Semester 2024 Xing is a social network for professional use that was started in Germany as OpenBC (Open Business Club) in 2003. IV.B.2.9. CASE STUDY: NEW WORK SE (XING) – OVERVIEW AND KEY STATISTICS It has grown to become an important recruiting platform (in Germany). Source: adopted from students' presentation in summer semester 2021 Nils Madeja Page 13  Digital Business Models (Module No. 1403) Summer Semester 2024 LinkedIn is the leading social network for professional use worldwide, offering various premium options. IV.B.2.10. CASE STUDY: LINKEDIN – OVERVIEW AND KEY STATISTICS It has become quite prominent in Germany, too. Source: adopted from students' presentation in summer semester 2021 Nils Madeja Page 14  Digital Business Models (Module No. 1403) Summer Semester 2024 As user statistics of social networks show, these platforms can be very scalable and achieve exponential growth. IV.B.2.11. USER BASE (NUMBER OF USERS) OF SOCIAL NETWORKS OVER TIME That's what happens when the "flywheel in the middle" is gaining momentum. Source: adopted from Our World in Data Nils Madeja Page 15  Digital Business Models (Module No. 1403) Summer Semester 2024 Several prominent examples of historic social networks illustrate that exponential growth can also turn into exponential decline… IV.B.2.12. POPULARITY OF SOCIAL NETWORKS OVER TIME (REL. TO OWN MAX.) In that case the "flywheel" keeps losing momentum, eventually grinding to a halt. Source: adopted from chartrdaily Nils Madeja Page 16  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 Digital ecosystems represent the most complex phenomena that we study in this module. V.A.1. SEGMENTATION OF DBM FOR THE PURPOSES OF THIS MODULE Ecosystems are the most complex and may involve multiple groups of users/ participants; various business relationships possible between the groups Platform Models are more complex and depend on attracting and managing communities of users (user base); typ. business relationships: N-to-N or N-to-M Basic/ Core Models represent the least complex and oldest digital busi- ness models; typical business relationships: 1-to-N Back-End/ Enabling Models vary in complexity; often invisible to consumers, they serve as building blocks for other business models, providing technology or service components They can be viewed as the highest development stage of digital business models. Sources: own work Nils Madeja Page 18  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