Business Models Summary PDF

Zusammefassung Business Models Chapter 1-6 A.1.1.: I.Introduction to Business Models DEFINITION OF A BUSINESS MODEL What is a business model? describes how a type of organization or ente...

Zusammefassung Business Models Chapter 1-6 A.1.1.: I.Introduction to Business Models DEFINITION OF A BUSINESS MODEL What is a business model? describes how a type of organization or enterprise: −Creates value with its activities, −Delivers or transfers value to its customers, and −Monetizes that value in order to retain/ appropriate some of it A biz model comprises the relevant: −Parties or entities and Relationships, esp. flows of goods, money, and information What is not a business model? A business benefit or value alone An isolated pricing plan or model A mere financial model, e. g.: −Payback/ ROI analysis, A competitive approach, e. g.: −Strategy, A business plan ➔ A business model describes how, on the outside, a business generates and delivers value to customers…and monetizes it. ➔ A business ➔ s model also describes the components for creating and capturing value that are located insidea business… ➔ The Business Model Canvas is a widely employed (or standard) framework for developing business model, …which can help to design (or formulate) submodels and components.(For example: Procurement model, value creation model, finance model, revenue and customer model) Business Model Canvas: External components of a business model: Internal components of a business model: Lecture #2: Characteristics of a business model Part 1 characteristics: ➔ A key element for assessing the viability of a business model is the value-add it generates, delivers and (partially) appropriates. The value-add justifies the Business Model. It is divided into: o Effectiveness: Providing customers with bigger benefits than existing offerings, e. g.: (i. e. new features), new benefits or increasing their profit o And Efficiency: Providing customers with an existing offering at lower cost ➔ understand the underlying drivers of: revenues and costs: o revenues through: ▪ usage or purchase ▪ pricing model ▪ network effects (critical mass) o costs: ▪ fixed cost (assets, employees, intellectual property) ▪ variable cost (customer acquisition, production, delivery and service, working capital) ➔ The respective quantity structures should be studied using KPIs. ➔ Scalability describes the ability of a business model to grow, considered in relation to the necessary amount of financing. BUT: Important: A business model does not need to be scalable in order to be viable! ➔ Capital requirements are: ➔ 1. Capital required for a business model to become self-sustaining(0. e. to get to cash break-even) ➔ 2. Capital required for lifting up a business model from one growth trajectory to a steeper one 2.4. RISK FACTORS AND BUSINESS-SPECIFIC RISKS Part 2: value capturing & value creation models ➔ value capturing model describes the relationships between a business and its customers … and the monetization of value (it is the front end of a BM and can be designed independently from the value creation model). So cusotomers and customer’s customers I.B.1.2. CUSTOMER RELATIONSHIPS AND REVENUE STREAMS ➔ questions who the customer is and how the money (revenue) flows are the starting point for every business model ➔ Who is the customer? o Who uses it, what drives their experience, what influences their decision, (in-)direct customer relationships ➔ How does the money flow? o Just once (one-time payment)?, Several times (instalments)? Or regularly (recurring payments)? o At which terms?,Directly or via third parties? ➔ Implications for: −Volume of revenues −Revenue development −Customer lifetime value −Cash management I.B.1.3. TARGET CUSTOMER SEGMENTS -> target customer segment is an important characteristic of a business model, influencing its dynamics and stability. I.B.1.4. ANALYSIS OF CUSTOMER RELATIONSHIPS ALONG THE LIFECYCLE -> Value capturing models can be characterized by analyzing typical customer relationships along their lifecycle I.B.1.5. PRICING MODELS -> determine what the customer pays for. is key for maximizing a business' income.  Session #3: I.B.1.6. EXAMPLES FOR MULTICOMPONENT PRICING MODELS ➔ Multicomponent pricing models enable businesses to capture value from several aspects of value delivery 1. example: Printers & ink car-tridges ▪ coffee machines & capsules, cars & spare parts, razor & blades 2. Systems & service: cars/ industrial machines/ software & MRO services 3. Mobile communication plans (Handyverträge) : Basic features and service volume are sold at low price/ margin (initially) -> After the initial period (upon automatic renewal) the price increases Additional features (e. g. short messages, international calls), and service volume are sold at high margin Value Creation models: ➔ it is the other important segment next to the value capturing model ➔ describes how a business generates ("produces") its offering from various supplies. ➔ Several typical –or fundamental –value creation models can be distinguished: o I.B.2.2. ASSET MODEL o I.B.2.3. PRODUCT MODEL o I.B.2.4. SERVICE MODEL o I.B.2.5. SOLUTION MODEL o I.B.2.6. LICENSE MODEL o I.B.2.7. PLATFORM MODEL I.B.2.2. ASSET MODEL -> the operation of production or generation equipment usually yields a fixed incomeis considered a quite predictable (i. e. "safe") model where it works. I.B.2.3. PRODUCT MODEL -> based on the provision of standardized goods; it scales well with the number of units sold -> Due to the investment necessary for development, it has a sharp risk-return profile I.B.2.4. SERVICE MODEL -> relies on people working for and with individual customers to create incorporeal value -> very flexible, but only slowly scalable I.B.2.5. SOLUTION MODEL -> combines elements from the product and the service models to deliver customer-specific goods. -> risk-return profileis therefore a blend of those of the two models I.B.2.6. LICENSE MODEL -> special form of the product model with intellectual capital (IP) at its center -> As IP is the only asset, this model has a very sharp risk-return profile.  I.B.2.7. PLATFORM MODEL -> benefits from attracting third parties and facilitating their business with one another -> challenge is to attract a critical mass of participants and offerings. Lecture # 4: II.Digital Business Fundamentals I.B.2.8. POT. RETURNS OF VALUE CREATION MODELS VS. MARKET FIT ➔ The higher the potential returns, the higher the market fit needs to be. ➔ Risk-return profiles of business models vary in their sharpness –or flatness –depending on the value creation model. 1. Key terms and characteristics: SIGNAL TYPES & DIGITIZATION: ORIGINAL, TECHNICAL DEFINITIONS  ➔ "Digitization" originally means to transform a continuous signal into a discrete signal, i. e. a sequence of integers (by sampling). ➔ In business administration "Digitization" refers to moving documents and processes online/ onto information systems ➔ Comprehensive constructed definition acc. to Vial [2.6]: "a process that aims to im-prove an entity by triggering significant changes to its properties through combina- tionsof ICCC*)technologies" ➔ Own working definition: "Remodeling an organiza-tion, so that data and information products in ICT systems become the source of value creation" II.A.1.5. DEFINITIONS: DIGITAL BUSINESS, E-BUSINESS, AND E-COMMERCE ➔ The concept of "Digital Business" encompasses that of"E-Business", which –in turn –includes "E-Commerce". "Digital Business comprises the initiation, processing, and fulfillment of economic activities over electronic networks with data and digital information goods playing a prominent (or even central )role." "Electronic/E-Business" is the initiation as well as the partial or full support, transaction [,] and maintenance of service exchange processes between economic partners through information technology (electronic networks)". "Electronic/E-Commerce involves the electronic support of activities that are directly related to the purchase and sale of products or services through electronic networks." ➔ Due to their different conceptual breadth/ scope, the three con-ceptscover companies from different levels of digital maturity. This scheme also reflects the historical evolution of the three concepts. ➔ Digital business models can be differentiated into digit(al)izedand "native" digital models, reflecting two levels of maturity ➔ Digit(al)izedmodel: o the provision of "analog" goods (i. e. physical objects) or services(i. e. in the real world) constitutes the core of the model o Data is acquired and processed via digital channels in order to support and administer that purpose o Electronic commerce and electronic business models (contained in broad definition of digital business) ➔ "Native" digital models o The provision of digital goods (i. e. information objects) or services(i. e. in the virtual world) constitutes the core of the model o Data is acquired and processed via digital channels as the raw material, main input, and basis for value creation ("oil of the 21stcentury") o Not (necessarily) electronic commerce/ business models ➔ The key difference lies in the role data plays in each type of model. II.A.1.8. "VALUE-ADD" OF DIGITAL BUSINESS: CHARACTERISTICS Effectiveness: ➔ Speed –instantaneous fulfillment if no physical component is involved ➔ Reach–the "long tail"can be addressed and served o Customer segments of one (with special preferences) o Highly specific niche offerings (especially if fully digital) ➔ Independence of time and location (only Internet connection required) ➔ New product and service offerings (i. e. by advanced analytics, AI) Efficiency: ➔ Transaction cost for sales processes near zero ➔ Variable production cost for digital goods and services near zero ➔ Automation enables low-touch customer service (customer self-help) ➔ But: additional cost for ensuring data quality (authenticity, integrity etc.) ➔ Disintermediation can lower distribution cost ( direct sales) ➔ Digital goods and services facilitate the disruption of markets II.A.1.9. LONG TAIL THEORY ➔ refers to the market segment of niche offerings; theory suggests it could grow at the expense of the Short Tail. ➔ Offerings sorted by sales rank/ popularity/ market share Left side:"short tail" ("hits") –most of the overall market Right side:"long tail" ("niche products") –traditionally underserved segment ➔ Yet, empirical evidence suggests that digital business might lead to the opposite. II.A.1.10. DISINTERMEDIATION ➔ means bypassing stages in the value chain –especially sales channels–i. e. "cutting out the middle man". ➔ Since the early days of E-Commerce this has been causing channel conflicts.  Lecture # 5 II.A.1.11. DISRUPTION/ DISRUPTIVE INNOVATIONS ➔ Disruption happens when a new entrant launches an inferioroffering at a low price, then rolls up a market from the low end ➔ Digital examples: Photography, Smartphones, Wikipedia, YouTube, Audio/ video streaming ➔ Disruption does not need to be digital, and not every game changer is "disruptive". Chapter 2, part 2: Segmentation & framework for analysis: II.B.1.1. SEGMENTATION OF DBM ACCORDING TO WIRTZ: Business models can be segmented into the 4 Cs and DBM in the B2B-space can be segmented into the 4S-Framework II.B.1.3. SEGMENTATION OF DBM FOR THE PURPOSES OF THIS MODULE ➔ Segmented mainly according to their complexity and visibility ➔ the boundaries between the segments overlap to a certain extent II.B.2.1. FRAMEWORK FOR ANALYSIS: EXTERNAL/ CUSTOMERS' PERSPECTIVE ➔ start the analysis from the external customer perspective ➔ Principle ("general idea"): o What is the content of the business? What makes up the offering? o Who are the relevant stakeholders –customers, suppliers, and partners? o Roughly speaking, how does the business model "work"? How do goods, services, money, and information flow? o How is value monetized, i. e. what do customers pay for and how? ➔ Examples: o Which company examples do you know… o Serving different customer segments (e. g. B2A, B2C, B2M, B2X2Y)? ➔ Value-add: o Which new/ additional benefits or cost savings does a model provide? o How is that value generated and delivered? o What do customers pay for and at which terms? II.B.2.2. FRAMEWORK FOR ANALYSIS: DRIVERS (DETERMINING FACTORS) ➔ you analyze the revenues (how often, purchase behavior, structure?) and the costs (variable and fix) ➔ Which are the relevant KPIs? How do they act together in quantity structures? ➔ A subsequent driver analysis reveals the mechanisms for creating and monetizing value II.B.2.3. ANALYSIS OF CUSTOMER RELATIONSHIPS ALONG THE LIFECYCLE Acquisition > development > termination Siehe: I.B.1.4. von der Zusammenfassung II.B.2.4. FRAMEWORK FOR ANALYSIS: ASSESSMENT AND EVALUATION ➔ In the last step of the analysis the properties of the business model are assessed and evaluated; conclusions are drawn 3rd Chapter: Basic/ Core Models Electronic commerce models ➔ Electronic commerce is about selling goods and services online and delivering them in the physical world ➔ Principle: o Selling goods and services online o Using website, app and devices (PC, phone) o Delivering goods and services offline to/ at customers' site (fulfillment) ➔ Examples: o B2B tools: Würthonline; B2B/ B2C tools: contorion, Conrad electronic o −International: Asos(UK); Zozo(Japan); Nastygal(US) ➔ Value-add: o Convenience: independence of time and (largely) of location, assortment o Drawbacks: Search cost and time for fulfillment o Customers pay for product or service (plus shipping and payment)  ➔ Electronic commerce reportedly started in 1994 with the online purchase of a CD. ➔ Despite changes in technology the core business model has remained unchanged. III.A.3. ELECTRONIC COMMERCE MODELS: MATURITY STAGES Onlinesales 1.0: o E-tailing/ online Shops (e. g. zappos/ zalando, zooplus, …) o Booking sites (e. g. Expedia, GetYourGuide, …) Onlinesales 2.0: o Shopping clubs (e. g. Veepee, Westwing, Secret Escapes,…) o Subscription models (e. g. birch-/ glossybox, HelloFresh, …) o Curated shopping (e. g. Outfittery/ Modomoto, Lyst, …) Onlinesales 3.0: o Omnichannelmgt.: clicks& mortar(e. g. Tesco, Carrefour, …) III.A.4. ELECTRONIC COMMERCE: RETAILING MODELS ➔ In the context of electronic commerce three categories of retailers (or three retailing models) are distinguished. ➔ There is a strong move to the medium category, especially from the left. Lecture 6: III.A.5. ELECTRONIC COMMERCE: FRONT-END CORE PROCESS ➔ An electronic commerce business generates revenues by attracting visitors to its web site and convertingthem into buyers. Online, e. g.:Search engines, Social networks and Offline, e. g.: TV, Print ads ➔ Operating costs in electronic commerce are mainly driven by the activities of the fulfillment (back-end) process.  III.A.7. ELECTRONIC COMMERCE: CUSTOMER ACQUISITION COSTS (CACS) ➔ electronic commerce CACS increase disproportionally with the number of customers acquired. ➔ Observations: o Individual CAC increases with every additional customer acquired (incremental CAC) o As a consequence, total CACS increase disproportionally (sum/ "integral" of all individual CACS) o How many customers should be acquired in the given time period? → customer economics ➔ That limits businesses' growth dynamics…or increases their capital requirements Customer Economics: Questions to be asked: o After how many purchases does a customer become profitable? o How many purchases does a customer usually make? o How much time elapses between the (repeat) purchases? o How does the contribution margin develop with purchases? o What is the resulting CLV? o How do these figures change across different customer cohorts? ➔ For many electronic commerce businesses, customers need to make several purchases in order to become profitable Revenues of: ELECTRONIC COMMERCE: ➔ New customers–acquisition via various channels: o −Online or Offline, numbers depend on marketing spend ➔ Customer base/existing customers ➔ Purchase behavior/ revenue per customer: o −Basket size (cross-/ upselling) o −Repeat purchases o −Clubs/ subscriptions (recurring rev.) Costs of: ELECTRONIC COMMERCE: ➔ Mostly stable –fixed cost: o −Technical platform (shop) o −Employees (shop-/ category-/ product management) ➔ Main driver –variable cost: o −Customer acquisition o −Customer (re-)activation o −Fulfillment:shipping and returns (in case of physical goods) o −Working capital(inventory, receivables) ➔ In summary, business models based on electronic commerce are quite scalable, However, their capital requirement increases with revenue growth rate. ➔ EXAMPLE: ZALANDO: it may take more than € 1bn. in funding to build a leading online retailer. ➔ The money is needed to cover initial losses and to build fulfillment infrastructure.  3rd Chapter: Basic/ Core Models Content(-driven) and service models ➔ … are based on making digital mediacontent available and delivering it to users. ➔ One basic pattern of content models is to make own or third-party content available to users and charge them directly. ➔ The challenge: Users are often unwilling to pay for content (adequately). ➔ Another basic pattern is to sell ad(vertising) space generatedfrom user interaction or based on user data. ➔ Then users "pay" for the content by receiving ad(vertisement)s or with their data. From an external perspective: TYPES OF MEDIA COMPANIES: ➔ As content is easy to digitize, most media companies have already "gone hybrid" Revenues of content models: ➔ Revenues with users directly: o Size of the user base o One-time revenues: number and volume of purchases o Recurring revenues: number., vol., and duration of subscriptions ➔ Revenues with ad customers: o Size of the user base, Usage: frequency & intensity of use o Traffic: number of page impres-sions(PI)generated by humans Cost of content models: ➔ Mostly stable –fixed cost: o Technical platform (shop), Employees (except production) o Slightly variable: user support ➔ Cost for content production: o Employees (dev. & realization), Project exp. (e. g. for series/ movies) ➔ Cost for licenses/ rights: o Fixed cost: basic fee, Variable cost: usage-dependent fees (structure can be complicated!) Summary of content models: ➔ Cost is largely determined by content sourcing/ acquisition. ➔ Scalability: o Growth follows user base and (human) usage o Capital mainly required for sourcing/ acquiring content o Highly scalable, as digital content can be multiplied easily o Challenge: minimum user base vs. minimum content offering ➔ Risks: o Flexible with respect to offering and scale/ size of the business o Depth of value creation depends on content production and marketing ad space o Imitability is determined by ownership of/ access to exclusive content o Employable content (more or less) restricted by regulation ➔ Implications: o Consumers' media usage has changed fundamentally: "free lunch"-mentality and expectation of a broad offering o Longtime crisis of established (offline) publishers digital transformation o Boundary Lecture # 7 1.) Basic/ Core Models - Content (-driven) and service models Principal/ General Idea: - Service models are based on working/ interacting with users in order to create some personalized, incorporate benefit for them - Delivery of digital services - Users pay directly for consuming the service Examples: - Personal development, training, and coaching: Babbel, Weight-loss programs (Weight watchers) Value-add: - Replaces physical contact - Quick and easy help or instruction, independent of time and location Service models differ in their degree of automation: - Architecture and Delivery Scalability: - Growth follows user base and usage - Depends on degree of automation/ need for human involvement Risks: - Flexible with respect to offering and scale/ size of the business - Depth of value creation depends on service development and marketing ad space - Imitability is determined by ability to render exclusive/ personalized services - Employable content (more or less) restricted by regulation Implications: - Consumers increasingly willing to consume automated services 2.) Platform Models - Marketplaces and Crowdsourcing - Evolved from basic core models, represent the next level of complexity  - Platform models are more complex and depend on attracting and managing communities of users, business relationships: N-to-N or N-to-M - A typical platform keeps developing with its community of users Technology and business perspective on platforms: Business model perspective: - a site for the exchange of contacts, goods, or services between third parties, attracting and managing third parties (community of users) - virtual site: online exchange of information (goods) - facilitating third-party transactions and monetizing them Technology perspective: - concepts supporting the modular development of products, enabling product/services variety on a common base - an IT-system, offering functionality for a broader user base → not every digital technology platform enables/ empowers a platform business model → a digital business platform needs a digital technology platform at its base Examples:  3.) Platform Models: Social networks and aggregator models - Growth of a platform is driven by network effects - Network effects can also be negative: acting in a vicious circle, they counteract growth and may even shrink the platform Strategies for Initiating platform Growth: Options for Platform Monetization: Segmentation of Social Networks: Professional (B2B) - Addressing users in their business role - E. g. for self-marketing/job search, recruiting and organizing educational programs Personal/Private (B2C) - Addressing users as private individuals - E. g. sharing personal interest and experiences, exchanging hobbies Segmentation of Aggregator/ Coordinator models: Strong own brand - Own customer interface - Customer has little contact to service provider - E. g. virtual transporter operators (Uber, Lyft, Cargonexx) Weaker own brand - Own customer interface - Customer knows services provider - E. g. food-ordering delivery platforms (Lieferando, Delivery Hero) 4.) Ecosystems: Consumer-/ End-user-oriented - Ecosystem= House - A biological community of interacting organisms and their physical environment Applications of the ecosystem concept to dig. Business: Definition of Ecosystem in the digital business concept: - “An Ecosystem is a set of actors with varying degrees of multilateral, nongeneric complementarities that are not fully hierarchically controlled” Distinguishing ecosystems from platform models: Segmentation of Ecosystems by target customers: Consumers/end users: Amazon, Apple, Facebook, Google, Alibaba Businesses/industrial users: Ilot platform: Adamos Definition of openness in the context of ecosystems → the degree of openness is reflected b several of the differentiating characteristics of ecosystems: loose coupling, centralized power and centricity → the degree of openness needs to be determined for four basic groups of actors/players who form an ecosystem: Strategies for producers Develop own channel: - Use “business-in-a-box” solutions - “Multi-home”, enlist in several large platforms - Use large platforms as showrooms for limited offering, then try to build direct customers relationship Focus own activities: - “going deep” focus on certain goods or services - “going abroad” offer certain competence to other producers Turn to others for support: - Team up with other producers - Take legal actions against key actors 5.) Ecosystems: Business-oriented/industrial- Only example above 6.) Back-End/Enabling Models: Cloud computing/ XaaS - Cloud computing refers to the provision of computing resources (hard- and software) over the internet - Virtualization is technology for dividing one physical machine into several distinct logical machines as perceived by the user Cloud computing: XaaS – Variable scope of services: Rational for and against XaaS offerings: XaaS offerings and examples: BPaaS: Business processes as a service – outsourcing beyond IT (Capgemini, Cognizant) SaaS: Software as a service (salesforce, pipedrive) PaaS: Platform as a service (MS Azure, AWS, commercetools) IaaS: Infrastructure as a service (dropbox, any internet service provider) 7.) Back-End/Enabling Models: Asset managers Asset management models by type of asset and examples: - Physical: B2C- smart home platforms (Kiwi, nest) - Financial: Banking, investing & wealth mgt. (N26), transaction services (PayPal) - Digital: Advertising networks (Taboola), Ad exchanges (AppNexus)