1. Youre holding a handbook for visionaries, game changers,and challengers striving to defy outmoded business modelsand design tomorrows enterprises. Its a book for the . . .written byAlexander Osterwalder & Yves Pigneurco-created byAn amazing crowd of 470 practitioners from 45 countriesdesigned byAlan Smith, The Movement

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BusinessModelGeneration A Handbook for Visionaries, Game Changers, and ChallengersWritten byAlexander Osterwalder and Yves PigneurDesignAlan Smith, The MovementEditor and Contributing Co-AuthorTim ClarkProductionPatrick van der PijlCo-created by an amazing crowd of470 practitioners from 45 countriesJohn Wiley & Sons, Inc. 5. Ellen Di RestaMichael Anton DilaRemko VochtelooVictor LombardiMatthew MilanRalf BeukerSander SmitNorbert HermanKaren HembroughRonald PilotYves Claude AubertWim SalyFrank Camille LagerveldAndres AlcaldeAlvaro Villalobos MBernard RacinePeter FrobergLino PianiEric JacksonIndrajit Datta ChaudhuriJeroen de JongGertjan VerstoepSteven DevijverJana ThielJeremy HayesAlf RehnJeff De CagnaAndrea MasonJan OndrusSimon EvenblijChris WaltersCaspar van RijnbachbenmlihRodrigo MirandaSaul KaplanLars GeiselSimon ScottDimitri LvitaJohan rnebladCraig SadlerPraveen SinghLivia LabateKristian SalvesenDaniel EggerDiogo CarmoMarcel OttAtanas ZaprianovLinus MalmbergDeborah Mills-ScofieldPeter KnolJess McMullinMarianela LedezmaRay GuyotMartin Andres GiorgettiGeert van VlijmenRasmus RnholtTim ClarkRichard BellErwin BlomFrdric SidlerJohn LM KiggunduRobert ElmZiv BaidaAndra Larin-van der PijlEirik V JohnsenBoris FritscherMike LachapelleAlbert MeigeWoutergortFanco Ivan Santos NegrelliAmee ShahLars MrtenssonKevin DonaldsonJD SteinRalf de GraafLars NorrmanSergey TrikhachevThomasAlfred HermanBert SpangenbergRobert van KootenHans SuterWolf SchumacherBill WelterMichele LeidiAsim J. RanjhaPeter TroxlerOla DagbergWouter van der BurgArtur SchmidtPekka MatilainenBas van OosterhoutGillian HuntBart BooneMichael MoriartyMikeDesign for InnovationTom CorcoranAri WurmannAntonio RobertWibe van der Polpaola valeriMichael SommersNicolas FleuryGert SteensJose Sebastian PalazuelosLopezjorge zavalaHarry HeijligersArmand DickeyJason KingKjartan MjoesundMartin FanghanelMichael SandfrNiall CaseyJohn McGuireVivian VendeirinhoMartl Bakker SchutStefano MastrogiacooMark HickmanDibrovReinhold KnigMarcel JaeggiJohn O'ConnellJavier IbarraLytton HeMarije SluisDavid EdwardsMartin Kuplens-EwartJay GoldmanIsckiaNabil HarfoushYannickRaoef HussainaliWalter BrandStephan ZiegenhornFrank MeeuwsenColin HendersonDanilo TicMarco RaaijmakersMarc SniukasKhaled AlgasemJan PelttariYves SinnerMichael KinderVince KuraitisTeofilo Asuan Santiago IVRay LaiBrainstorm WeeklyHuub RaemakersPeter SalmonPhilippeKhawaja M.Jille SolRenninger, WolfgangDaniel PandzaGuilhem BertholetThibault EstierStephane ReyChris PeasnerJonathan LinCesar PicosFlorianArmando MaldonadoEduardo MguezAnouar HamidoucheFrancisco PerezNicky SmythBob DunnCarlo ArioliPablo M. RamrezJean-LoupColin PonsVacherandGuillermo Jose AguilarAdriel HaeniLukas ProchazkaKim KornAbdullah NadeemRory O'ConnorHubert de CandFrans WittenbergJonas LindelfGordon GraySlabberPeter JonesSebastian UllrichAndrew PopeFredrik EliassonBruce MacVarishGran HagertMarkus GanderMarc CastricumNicholas K. NiemannChristian LabezinClaudio D'IpolittoAurel HosennenAdrian ZauggLouis RosenfeldIvo GeorgievDonald ChapinAnnie ShumValentin CrettazDave CrowtherChris J DavisFrank Della RosaChristian SchllerLuis Eduardo de CarvalhoPatrik EkstrmGreg KrauskaGiorgio CasoniStef Silvisronald van den hoffMelbert VisscherManfred FischerJoe ChaoCarlos MecaMario MoralesPaul JohannessonRob GriffittsMarc-Antoine GarrigueWassili BertoenBart PieperBruce E. TerryMichael N. WilkensHimikel - TrebeARobin UchidaPius BienzIvan TorreblancaBerry VetjensDavid CrowHelge HannisdalMaria DroujkovaLeonard BelangerFernando Saenz-MarreroSusan FoleyVesela KolevaMartijnEugen RodelEdward GiesenCo-created by: 6. Marc FaltheimNicolas De SantisAntoine PerruchoudBernd NurnbergerPatrick van AbbemaTerje SandLeandro JesusKaren DavisTim TurmelleAnders SundelinRenata PhillippiMartin KaczynskiFrankRicardo DoradoJohn SmithRodEddieJeffrey HuangTerrance Moorense_55Leif-Arne BakkerEdler HerbertBjrn KijlChris FinlayPhilippe RousselotRob SchokkerStephan LinnenbankLilianaJose Fernando QuintanaReinhard PrglBrian MooreGabiMarko SeppnenErwin FieltOlivier GlasseyFrancisco CondeFernndezValrie ChanalAnne McCrossanJose Alfonso LopezEric SchreursDonielle BuieAdilson ChicriaAsanka WarusevitaneJacob RavnHampus JakobssonAdriaan KikJulin Domnguez LaperalMarco W J DerksenDr. Karsten WillrodtPatrick FeinerDave CutherellEdwin BeumerDax DenneboomMohammed MushtaqGaurav BhallaSilvia AdelhelmHeather McGowanPhil Sang YimNoel BarryVishwanathEdavayyanamathRob MansonRafael FigueiredoJeroen MulderManuel ToscanoJohn SutherlandRemo KnopsJuan MarquezChris HopfMarc FaehUrquhart WoodLise TormodCurtis L. SippelAbdul Razak ManafGeorge B. SteltmanKarl BurrowMark McKeeverBala VaddiAndrew JenkinsDariush GhatanMarcus AmbroschJens HoffmannSteve ThomsonEduardo M MorgadoRafal DudkowskiAntnio Lucena de FariaKnut Petter NorVentenat VincentPeter EckrichShridhar LollaWouter VerwerJan SchmiedgenUgo MerkliJelleDave GrayRick le RoyRavila WhiteDavid G Luna ArellanoJoyce HostynThorwald WestmaasJason TheodorSandra PickeringTrond M FflvstegaardLarsenFred CollopyJana GrsPatrick ForanEdward OsbornGreger HagstrmAlberto SaavedraRemco de KramerLillian ThompsonHoward BrownEmil AnsarovFrank ElbersHoracio Alvaro VianaDi PriscoDarlene GoetzmanMohan NadarajahFabrice DelayeSunil MalhotraJasper BouwsmaOuke ArtsAlexander TroitzschBrett PatchingClifford ThompsonJorgen DahlbergChristoph MhlethalerErnest BuiseEmilio De GiacomoFranco GasperoniMichael WeissFrancisco AndradeArturo Herrera SapunarVincent de JongKees GroeneveldHenk BohlanderSushil ChatterjiTim ParseyGeorg E. A. StampflMarkus KreutzerIwan SchneiderLinda BryantJeroen HinfelaarDan KeldsenDamienRoger A. ShepherdMorten PovlsenLars ZahlElin Mrch LangloXuemei TianHarry VerwayenRiccardo BonazziAndr JohansenColin BushJens LarssonDavid SibbetMihail KrikunovEdwin KruisRoberto OrtelliShana Ferrigan BourcierJeffrey MurphyLonnie Sanders IIIArnold WytenburgDavid HughesPaul FergusonFrontier Service Design,LLCPeter NoteboomJeaninne Horowitz GassolLukas FeuersteinNathalie MagniezGiorgio PaulettoMartijn PaterGerardo Pagalday EraaHaider RazaAjay AilawadhiAdriana IeraciDanil GiesenErik DejongheTom WinstanleyHeiner P. KaufmannEdwin Lee Ming JinMarkus SchrollHylke ZeijlstraCheenu SrinivasanCyril DurandJamil AslamOliver BueckenJohn Wesner PriceAxel FrieseGudmundur KristjanssonRita ShorJesus VillarEspen Figenschou-SkotterudJames ClarkAlfonso MirelesRichard ZandinkFraunhofer IAOTor Rolfsen GrnsundDavid M. WeissKim Peiter JrgensenStephanie DiamondStefan OlssonAnders StlanEdward KoopsPrasert Thawat-chokethaweePablo AzarMelissa WithersMichael SchusterIngrid BeckAntti krsEHJ PeetRonald PoultonRalf WeidenhammerCraig RispinNella van HeuvenRavi SodhiDick RemptRolf MehnertLuis StabileEnterprise ConsultingAline FrankfortAlexander KorbeeJ BartelsSteven RitcheyClark GolestaniLeslie CohenAmanda SmithBenjamin De PauwAndre MacieiraWiebe de JagerRaym CrowMark Evans DMSusan Schaper 7. Are you an entrepreneurial spirit?yes _______ no _______Are you constantly thinking about how tocreate value and build new businesses, or howto improve or transform your organization?yes _______ no _______Are you trying to find innovativeways of doing business to replaceold, outdated ones?yes _______ no _______ 8. If youve answeredyes to any of thesequestions, welcometo our group!Youre holding a handbook for visionaries, gamechangers, and challengers striving to defy outmodedbusiness models and design tomorrows enterprises.Its a book for the business model generation. 9. Today countless innovative business modelsare emerging. Entirely new industries areforming as old ones crumble. Upstarts arechallenging the old guard, some of whom arestruggling feverishly to reinvent themselves.How do you imagine your organizationsbusiness model might look two, five, or tenyears from now? Will you be among thedominant players? Will you face competitorsbrandishing formidable new business models? 10. This book will give you deep insight into the nature of business models.It describes traditional and bleeding-edge models and their dynamics,innovation techniques, how to position your model within an intenselycompetitive landscape, and how to lead the redesign of your own organi-zationsbusiness model.Certainly youve noticed that this is not the typical strategy or man-agementbook. We designed it to convey the essentials of what you needto know, quickly, simply, and in a visual format. Examples are presentedpictorially and the content is complemented with exercises and workshopscenarios you can use immediately. Rather than writing a conventionalbook about business model innovation, weve tried to design a practicalguide for visionaries, game changers, and challengers eager to design orreinvent business models. Weve also worked hard to create a beautifulbook to enhance the pleasure of your consumption. We hope you enjoyusing it as much as weve enjoyed creating it.An online community complements this book (and was integral toits creation, as you will discover later). Since business model innovationis a rapidly evolving field, you may want to go beyond the essentials inBusiness Model Generation and discover new tools online. Please considerjoining our worldwide community of business practitioners and research-erswho have co-created this book. On the Hub you can participate indiscussions about business models, learn from others insights, and tryout new tools provided by the authors. Visit the Business Model Hub atwww.BusinessModelGeneration.com/hub.Business model innovation is hardly new. When the founders of DinersClub introduced the credit card in 1950, they were practicing businessmodel innovation. The same goes for Xerox, when it introduced photo-copierleasing and the per-copy payment system in 1959. In fact, we mighttrace business model innovation all the way back to the fifteenth century,when Johannes Gutenberg sought applications for the mechanical printingdevice he had invented.But the scale and speed at which innovative business models aretransforming industry landscapes today is unprecedented. For entre-preneurs,executives, consultants, and academics, it is high time tounderstand the impact of this extraordinary evolution. Now is the timeto understand and to methodically address the challenge of businessmodel innovation.Ultimately, business model innovation is about creating value, forcompanies, customers, and society. It is about replacing outdated models.With its iPod digital media player and iTunes.com online store, Applecreated an innovative new business model that transformed the companyinto the dominant force in online music. Skype brought us dirt-cheapglobal calling rates and free Skype-to-Skype calls with an innovativebusiness model built on so-called peer-to-peer technology. It is now theworlds largest carrier of international voice traffic. Zipcar frees city dwell-ersfrom automobile ownership by offering hourly or daily on-demandcar rentals under a fee-based membership system. Its a business modelresponse to emerging user needs and pressing environmental concerns.Grameen Bank is helping alleviate poverty through an innovative businessmodel that popularized microlending to the poor.But how can we systematically invent, design, and implementthese powerful new business models? How can we question, challenge,and transform old, outmoded ones? How can we turn visionary ideasinto game-changing business models that challenge the establishmentorrejuvenate it if we ourselves are the incumbents? Business Model Generationaims to give you the answers.Since practicing is better than preaching, we adopted a new modelfor writing this book. Four hundred and seventy members of the BusinessModel Innovation Hub contributed cases, examples, and critical com-mentsto the manuscriptand we took their feedback to heart. Read moreabout our experience in the final chapter of Business Model Generation. 11. Seven Faces ofBusiness ModelInnovationThe Senior ExecutiveJean-Pierre Cuoni,Chairman / EFG InternationalFocus: Establish a new business modelin an old industryJean-Pierre Cuoni is chairman ofEFG International, a private bankwith what may be the industrys mostinnovative business model. WithEFG he is profoundly transformingthe traditional relationships betweenbank, clients, and client relationshipmanagers. Envisioning, crafting, andexecuting an innovative businessmodel in a conservative industry withestablished players is an art, andone that has placed EFG Internationalamong the fastest growing banksin its sector.The IntrapreneurDagfi nn Myhre,Head of R&I Business Models / TelenorFocus: Help exploit the latest techno-logicaldevelopments with the rightbusiness modelsDagfi nn leads a business model unitat Telenor, one of the worlds ten larg-estmobile telephone operators. Thetelecom sector demands continuousinnovation, and Dagfi nns initiativeshelp Telenor identify and understandsustainable models that exploit thepotential of the latest technologicaldevelopments. Through deep analysisof key industry trends, and by develop-ingand using leading-edge analyticaltools, Dagfi nns team explores newbusiness concepts and opportunities.The EntrepreneurMarille Sijgers,Entrepreneur / CDEF Holding BVFocus: Address unsatisfi ed customerneeds and build new business modelsaround themMarielle Sijgers is a full-fl edgedentrepreneur. Together with herbusiness partner, Ronald van denHoff, shes shaking up the meeting,congress, and hospitality industrywith innovative business models.Led by unsatisfi ed customer needs,the pair has invented new conceptssuch as Seats2meet.com, which allowson-the-fl y booking of meetings inuntraditional locations. Together,Sijgers and van den Hoff constantlyplay with new business model ideasand launch the most promisingconcepts as new ventures. 12. The InvestorGert Steens, President & InvestmentAnalyst / Oblonski BVFocus: Invest in companies with themost competitive business modelsGert makes a living by identifying thebest business models. Investing in thewrong company with the wrong modelcould cost his clients millions of eurosand him his reputation. Understandingnew and innovative business modelshas become a crucial part of his work.He goes far beyond the usual fi nancialanalytics and compares businessmodels to spot strategic differencesthat may impart a competitive edge.Gert is constantly seeking businessmodel innovations.The ConsultantBas van Oosterhout, SeniorConsultant / Capgemini ConsultingFocus: Help clients question theirbusiness models, and envision andbuild new onesBas is part of Capgeminis BusinessInnovation Team. Together withhis clients, he is passionate aboutboosting performance and renewingcompetitiveness through innovation.Business Model Innovation is now acore component of his work becauseof its high relevance to client projects.His aim is to inspire and assist clientswith new business models, fromideation to implementation. To achievethis, Bas draws on his understandingof the most powerful business models,regardless of industry.The DesignerTrish Papadakos,Sole Proprietor / The Institute of YouFocus: Find the right business modelto launch an innovative productTrish is a talented young designerwho is particularly skilled at grasp-ingan ideas essence and weaving itinto client communications. Currentlyshes working on one of her own ideas,a service that helps people who aretransitioning between careers. Afterweeks of in-depth research, shes nowtackling the design. Trish knows shellhave to fi gure out the right businessmodel to bring her service to market.She understands the client-facingpartthats what she works on dailyas a designer. But, since she lacks for-malbusiness education, she needs thevocabulary and tools to take on thebig picture.The Conscientious EntrepreneurIqbal Quadir, Social Entrepreneur /Founder of Grameen PhoneFocus: Bring about positive social andeconomic change through innovativebusiness modelsIqbal is constantly on the lookoutfor innovative business models withthe potential for profound socialimpact. His transformative modelbrought telephone service to over100 million Bangladeshis, utilizingGrameen Banks microcredit network.He is now searching for a new modelfor bringing affordable electricity to thepoor. As the head of MITs LegatumCenter, he promotes technologicalempowerment through innovativebusinesses as a path to economic andsocial development. 13. Table of ContentsDesignCanvasOutlookAfterwordProcessPatternsStrategyThe book is divided into five sections: 1 The Busi-nessModel Canvas, a tool for describing, analyzing,and designing business models, 2 Business ModelPatterns, based on concepts from leading businessthinkers, 3 Techniques to help you design businessmodels, 4 Re-interpreting strategy through thebusiness model lens, and 5 A generic process tohelp you design innovative business models, tyingtogether all the concepts, techniques, and tools inBusiness Model Generation. }The last section offersan outlook on five business model topics for futureexploration. Finally, the afterword provides a peekinto the making of Business Model Generation. 14. 1 Canvas14 Definition of a BusinessModel16 The 9 Building Blocks44 The Business ModelCanvas2 Patterns56 Unbundling BusinessModels66 The Long Tail76 Multi-Sided Platforms88 FREE as a Business Model108 Open Business Models3 Design126 Customer Insights134 Ideation146 Visual Thinking160 Prototyping170 Storytelling180 Scenarios4 Strategy200 Business ModelEnvironment212 Evaluating BusinessModels226 Business ModelPerspective on BlueOcean Strategy232 Managing MultipleBusiness Models5 Process244 Business ModelDesign Process} Outlook262 OutlookAfterword274 Where did this bookcome from?276 References 15. Canvas 16. Canvas 17. The BusinessModel CanvasA shared language for describing, visualizing,assessing, and changing business models 18. 14 Definition of aBusiness Model16 The 9 Building Blocks44 The Business ModelCanvas Template 19. 14Def_Business ModelA business model describesthe rationale of how anorganization creates, delivers,and captures value 20. 15The starting point for any good discussion, meeting,or workshop on business model innovation shouldbe a shared understanding of what a business modelactually is. We need a business model concept thateverybody understands: one that facilitates descrip-tionand discussion. We need to start from the samepoint and talk about the same thing. The challenge isthat the concept must be simple, relevant, and intui-tivelyunderstandable, while not oversimplifying thecomplexities of how enterprises function.In the following pages we oer a concept that allowsyou to describe and think through the business modelof your organization, your competitors, or any otherenterprise. This concept has been applied and testedaround the world and is already used in organizationssuch as IBM, Ericsson, Deloitte, the Public Works andGovernment Services of Canada, and many more.This concept can become a shared language thatallows you to easily describe and manipulate businessmodels to create new strategic alternatives. Withoutsuch a shared language it is diicult to systematicallychallenge assumptions about ones business modeland innovate successfully.We believe a business model can best be describedthrough nine basic building blocks that show thelogic of how a company intends to make money. Thenine blocks cover the four main areas of a business:customers, oer, infrastructure, and financial viability.The business model is like a blueprint for a strategyto be implemented through organizational structures,processes, and systems. 21. [CustomerSegmentsAn organization servesone or several CustomerSegments.ValuePropositionsIt seeks to solve customerproblems and satisfycustomer needs withvalue propositions.ChannelsValue propositionsare delivered to customersthrough communication,distribution, and salesChannels.CustomerRelationshipsCustomer relationshipsare established andmaintained with eachCustomer Segment.[ The 9 Building BlocksCS VP CH Cr1 2 3 4 22. 17r$ Kr KA KP C$RevenueStreamsRevenue streams resultfrom value propositionssuccessfully oered tocustomers.KeyResourcesKey resources are theassets required to oerand deliver the previouslydescribed elements . . .KeyActivities. . . by performing a num-berof Key Activities.KeyPartnershipsSome activities areoutsourced and someresources are acquiredoutside the enterprise.CostStructureThe business modelelements result in thecost structure.5 6 7 8 9 23. 18KrKey ResourcesKPKey PartnersKAKey ActivitiesC$Cost Structure 24. 19CrCustomer RelationshipsCSCustomer SegmentsVPValue PropositionsCHChannelsr$Revenue Streams 25. CSThe Customer Segments Building Block defi nesthe dierent groups of people or organizations anenterprise aims to reach and serveCustomers comprise the heart of any business model. Without(profi table) customers, no company can survive for long. In orderto better satisfy customers, a company may group them intodistinct segments with common needs, common behaviors,or other attributes. A business model may defi ne one or severallarge or small Customer Segments. An organization must makea conscious decision about which segments to serve and whichsegments to ignore. Once this decision is made, a business modelcan be carefully designed around a strong understanding ofspecifi c customer needs.Customer groups represent separate segments if: Their needs require and justify a distinct oer They are reached through dierent Distribution Channels They require dierent types of relationships They have substantially dierent profi tabilities They are willing to pay for dierent aspects of the oerCustomer Segments1 26. 21There are dierent types of Customer Segments.Here are some examples:Mass marketBusiness models focused on mass markets dontdistinguish between dierent Customer Segments.The Value Propositions, Distribution Channels, andCustomer Relationships all focus on one large groupof customers with broadly similar needs and problems.This type of business model is often found in theconsumer electronics sector.Niche marketBusiness models targeting niche markets cater tospecific, specialized Customer Segments. The ValuePropositions, Distribution Channels, and CustomerRelationships are all tailored to the specific require-mentsof a niche market. Such business modelsare often found in supplier-buyer relationships. Forexample, many car part manufacturers depend heavilyon purchases from major automobile manufacturers.SegmentedSome business models distinguish between marketsegments with slightly dierent needs and problems.The retail arm of a bank like Credit Suisse, for example,may distinguish between a large group of customers,each possessing assets of up to U.S. $100,000, anda smaller group of aluent clients, each of whose networth exceeds U.S. $500,000. Both segments havesimilar but varying needs and problems. This hasimplications for the other building blocks of CreditSuisses business model, such as the Value Proposi-tion,Distribution Channels, Customer Relationships,and Revenue streams. Consider Micro PrecisionSystems, which specializes in providing outsourcedmicromechanical design and manufacturing solutions.It serves three dierent Customer Segmentsthewatch industry, the medical industry, and the industrialautomation sectorand oers each slightly dierentValue Propositions.DiversifiedAn organization with a diversified customer businessmodel serves two unrelated Customer Segmentswith very dierent needs and problems. For example,in 2006 Amazon.com decided to diversify its retailbusiness by selling cloud computing services: onlinestorage space and on-demand server usage. Thusit started catering to a totally dierent CustomerSegmentWeb companieswith a totally dierentValue Proposition. The strategic rationale behind thisdiversification can be found in Amazon.coms powerfulIT infrastructure, which can be shared by its retail salesoperations and the new cloud computing service unit.Multi-sided platforms (or multi-sided markets)Some organizations serve two or more interdepen-dentCustomer Segments. A credit card company, forexample, needs a large base of credit card holdersand a large base of merchants who accept those creditcards. Similarly, an enterprise oering a free news-paperneeds a large reader base to attract advertisers.On the other hand, it also needs advertisers to financeproduction and distribution. Both segments arerequired to make the business model work (readmore about multi-sided platforms on p. 76).For whom are we creating value?Who are our most important customers? 27. VP2 Value PropositionsThe Value Propositions Building Block describesthe bundle of products and services that createvalue for a specifi c Customer SegmentThe Value Proposition is the reason why customers turn to onecompany over another. It solves a customer problem or satisfi esa customer need. Each Value Proposition consists of a selectedbundle of products and/or services that caters to the requirementsof a specifi c Customer Segment. In this sense, the Value Proposi-tionis an aggregation, or bundle, of benefi ts that a companyoers customers.Some Value Propositions may be innovative and represent anew or disruptive oer. Others may be similar to existing marketoers, but with added features and attributes. 28. 23What value do we deliver to the customer?Which one of our customers problems are we helpingto solve? Which customer needs are we satisfying?What bundles of products and services are we oeringto each Customer Segment?A Value Proposition creates value for a CustomerSegment through a distinct mix of elements cater-ingto that segments needs. Values may be quan-titative(e.g. price, speed of service) or qualitative(e.g. design, customer experience).Elements from the following non-exhaustive listcan contribute to customer value creation.NewnessSome Value Propositions satisfy an entirely new setof needs that customers previously didnt perceivebecause there was no similar oering. This is often,but not always, technology related. Cell phones,for instance, created a whole new industry aroundmobile telecommunication. On the other hand,products such as ethical investment funds havelittle to do with new technology.PerformanceImproving product or service performance hastraditionally been a common way to create value.The PC sector has traditionally relied on this factorby bringing more powerful machines to market.But improved performance has its limits. In recentyears, for example, faster PCs, more disk storagespace, and better graphics have failed to producecorresponding growth in customer demand.CustomizationTailoring products and services to the specificneeds of individual customers or CustomerSegments creates value. In recent years, theconcepts of mass customization and customerco-creation have gained importance. This approachallows for customized products and services,while still taking advantage of economies of scale. 29. Getting the job doneValue can be created simply by helping a customerget certain jobs done. Rolls-Royce understands thisvery well: its airline customers rely entirely on Rolls-Royce to manufacture and service their jet engines.This arrangement allows customers to focus onrunning their airlines. In return, the airlines payRolls-Royce a fee for every hour an engine runs.DesignDesign is an important but diicult element to mea-sure.A product may stand out because of superiordesign. In the fashion and consumer electronicsindustries, design can be a particularly importantpart of the Value Proposition.Brand/statusCustomers may fi nd value in the simple act of usingand displaying a specifi c brand. Wearing a Rolexwatch signifi es wealth, for example. On the other endof the spectrum, skateboarders may wear the latestunderground brands to show that they are in.PriceOering similar value at a lower price is a commonway to satisfy the needs of price-sensitive Cus-tomerSegments. But low-price Value Propositionshave important implications for the rest of a busi-nessmodel. No frills airlines, such as Southwest,easyJet, and Ryanair have designed entire businessmodels specifi cally to enable low cost air travel.Another example of a price-based Value Proposi-tioncan be seen in the Nano, a new car designedand manufactured by the Indian conglomerate Tata.Its surprisingly low price makes the automobileaordable to a whole new segment of the Indianpopulation. Increasingly, free oers are starting topermeate various industries. Free oers range fromfree newspapers to free e-mail, free mobile phoneservices, and more (see p. 88 for more on FREE).2 30. 25Cost reductionHelping customers reduce costs is an importantway to create value. Salesforce.com, for example,sells a hosted Customer Relationship management(CRM) application. This relieves buyers from theexpense and trouble of having to buy, install, andmanage CRM software themselves.Risk reductionCustomers value reducing the risks they incurwhen purchasing products or services. For a usedcar buyer, a one-year service guarantee reducesthe risk of post-purchase breakdowns and repairs.A service-level guarantee partially reduces therisk undertaken by a purchaser of outsourced ITservices.AccessibilityMaking products and services available to custom-erswho previously lacked access to them is anotherway to create value. This can result from businessmodel innovation, new technologies, or a combina-tionof both. NetJets, for instance, popularized theconcept of fractional private jet ownership. Using aninnovative business model, NetJets oers individu-alsand corporations access to private jets, a servicepreviously unaordable to most customers. Mutualfunds provide another example of value creationthrough increased accessibility. This innovativefinancial product made it possible even for thosewith modest wealth to build diversified investmentportfolios.Convenience/usabilityMaking things more convenient or easier to usecan create substantial value. With iPod and iTunes,Apple oered customers unprecedented conve-niencesearching, buying, downloading, and listen-ingto digital music. It now dominates the market. 31. CH3 ChannelsThe Channels Building Block describes how acompany communicates with and reaches itsCustomer Segments to deliver a Value PropositionCommunication, distribution, and sales Channels comprise acompany's interface with customers. Channels are customer touchpoints that play an important role in the customer experience.Channels serve several functions, including: Raising awareness among customers about a companysproducts and services Helping customers evaluate a companys Value Proposition Allowing customers to purchase specifi c products and services Delivering a Value Proposition to customers Providing post-purchase customer support 32. Through which Channels do our Customer Segments 27want to be reached? How are we reaching them now?How are our Channels integrated? Which ones work best?Which ones are most cost-eicient? How are weintegrating them with customer routines?Channels have five distinct phases. Each channel cancover some or all of these phases. We can distinguishbetween direct Channels and indirect ones, as well asbetween owned Channels and partner Channels.Finding the right mix of Channels to satisfy howcustomers want to be reached is crucial in bringinga Value Proposition to market. An organization canchoose between reaching its customers through itsown Channels, through partner Channels, or througha mix of both. Owned Channels can be direct, such asan in-house sales force or a Web site, or they can beindirect, such as retail stores owned or operated by theorganization. Partner Channels are indirect and span awhole range of options, such as wholesale distribution,retail, or partner-owned Web sites.Partner Channels lead to lower margins, but theyallow an organization to expand its reach and benefitfrom partner strengths. Owned Channels and particu-larlydirect ones have higher margins, but can be costlyto put in place and to operate. The trick is to find theright balance between the dierent types of Channels,to integrate them in a way to create a great customerexperience, and to maximize revenues.Channel Types Channel PhasesSales force1. AwarenessHow do we raise aware-nessabout our companysproducts and services?2. EvaluationHow do we help custom-ersevaluate our organiza-tionsValue Proposition?3. PurchaseHow do we allow custom-ersto purchase specificproducts and services?4. DeliveryHow do we deliver a ValueProposition to customers?5. After salesHow do we providepost-purchase customersupport?Web salesOwn storesPartnerstoresWholesalerIndirect DirectPartner Own 33. Customer RelationshipsThe Customer Relationships Building Blockdescribes the types of relationships a companyestablishes with specifi c Customer SegmentsA company should clarify the type of relationship it wants toestablish with each Customer Segment. Relationships can rangefrom personal to automated. Customer relationships may bedriven by the following motivations: Customer acquisition Customer retention Boosting sales (upselling)In the early days, for example, mobile network operator CustomerRelationships were driven by aggressive acquisition strategiesinvolving free mobile phones. When the market became saturated,operators switched to focusing on customer retention and increas-ingaverage revenue per customer.The Customer Relationships called for by a companys businessmodel deeply infl uence the overall customer experience.Cr4 34. 29What type of relationship does each of our CustomerSegments expect us to establish and maintain with them?Which ones have we established? How costly are they?How are they integrated with the rest of our business model?We can distinguish between several categories ofCustomer Relationships, which may co-exist in acompanys relationship with a particularCustomer Segment:Personal assistanceThis relationship is based on human interaction.The customer can communicate with a real customerrepresentative to get help during the sales process orafter the purchase is complete. This may happen on-siteat the point of sale, through call centers, by e-mail,or through other means.Dedicated personal assistanceThis relationship involves dedicating a customerrepresentative specifically to an individual client. Itrepresents the deepest and most intimate type ofrelationship and normally develops over a long periodof time. In private banking services, for example, dedi-catedbankers serve high net worth individuals. Similarrelationships can be found in other businesses in theform of key account managers who maintain personalrelationships with important customers.Self-serviceIn this type of relationship, a company maintains nodirect relationship with customers. It provides all thenecessary means for customers to help themselves.Automated servicesThis type of relationship mixes a more sophisti-catedform of customer self-service with automatedprocesses. For example, personal online profiles givecustomers access to customized services. Automatedservices can recognize individual customers and theircharacteristics, and oer information related to ordersor transactions. At their best, automated services cansimulate a personal relationship (e.g. oering book ormovie recommendations).CommunitiesIncreasingly, companies are utilizing user communitiesto become more involved with customers/prospectsand to facilitate connections between communitymembers. Many companies maintain online com-munitiesthat allow users to exchange knowledge andsolve each others problems. Communities can alsohelp companies better understand their customers.Pharmaceutical giant GlaxoSmithKline launched aprivate online community when it introduced alli, anew prescription-free weight-loss product.GlaxoSmithKline wanted to increase its under-standingof the challenges faced by overweightadults, and thereby learn to better manage customerexpectations.Co-creationMore companies are going beyond the traditionalcustomer-vendor relationship to co-create value withcustomers. Amazon.com invites customers to writereviews and thus create value for other book lovers.Some companies engage customers to assist with thedesign of new and innovative products. Others, suchas YouTube.com, solicit customers to create contentfor public consumption. 35. Revenue StreamsThe Revenue Streams Building Block representsthe cash a company generates from each CustomerSegment (costs must be subtracted from revenues tocreate earnings)If customers comprise the heart of a business model, RevenueStreams are its arteries. A company must ask itself, For what valueis each Customer Segment truly willing to pay? Successfullyanswering that question allows the fi rm to generate one or moreRevenue Streams from each Customer Segment. Each RevenueStream may have dierent pricing mechanisms, such as fi xed listprices, bargaining, auctioning, market dependent, volume depen-dent,or yield management.A business model can involve two dierent types of Revenue Streams:1. Transaction revenues resulting from one-time customer payments2. Recurring revenues resulting from ongoing payments to eitherdeliver a Value Proposition to customers or provide post-purchasecustomer supportr$5 36. 31For what value are our customers really willing to pay?For what do they currently pay? How are they currentlypaying? How would they prefer to pay? How much doeseach Revenue Stream contribute to overall revenues?There are several ways to generate Revenue Streams:Asset saleThe most widely understood Revenue Stream derivesfrom selling ownership rights to a physical product.Amazon.com sells books, music, consumer electron-ics,and more online. Fiat sells automobiles, whichbuyers are free to drive, resell, or even destroy.Usage feeThis Revenue Stream is generated by the use of aparticular service. The more a service is used, themore the customer pays. A telecom operator maycharge customers for the number of minutes spent onthe phone. A hotel charges customers for the numberof nights rooms are used. A package delivery servicecharges customers for the delivery of a parcel fromone location to another.Subscription feesThis Revenue Stream is generated by selling continu-ousaccess to a service. A gym sells its membersmonthly or yearly subscriptions in exchange foraccess to its exercise facilities. World of WarcraftOnline, a Web-based computer game, allows users toplay its online game in exchange for a monthly sub-scriptionfee. Nokias Comes with Music service givesusers access to a music library for a subscription fee.Lending/Renting/LeasingThis Revenue Stream is created by temporar-ilygranting someone the exclusive right to use aparticular asset for a fixed period in return for afee. For the lender this provides the advantage ofrecurring revenues. Renters or lessees, on the otherhand, enjoy the benefits of incurring expenses foronly a limited time rather than bearing the full costsof ownership. Zipcar.com provides a good illustration.The company allows customers to rent cars by thehour in North American cities. Zipcar.coms servicehas led many people to decide to rent rather thanpurchase automobiles.LicensingThis Revenue Stream is generated by giving customerspermission to use protected intellectual property inexchange for licensing fees. Licensing allows rights-holdersto generate revenues from their property with-outhaving to manufacture a product or commercializea service. Licensing is common in the media industry,where content owners retain copyright while sellingusage licenses to third parties. Similarly, in technologysectors, patentholders grant other companies the rightto use a patented technology in return for a license fee. 37. Brokerage feesThis Revenue Stream derives from intermediationservices performed on behalf of two or more parties.Credit card providers, for example, earn revenuesby taking a percentage of the value of each salestransaction executed between credit card merchantsand customers. Brokers and real estate agents earna commission each time they successfully match abuyer and seller.AdvertisingThis Revenue Stream results from fees for advertisinga particular product, service, or brand. Traditionally,the media industry and event organizers relied heavilyon revenues from advertising. In recent years othersectors, including software and services, have startedrelying more heavily on advertising revenues.Each Revenue Stream might have dierent pricingmechanisms. The type of pricing mechanism chosencan make a big dierence in terms of revenues gener-ated.There are two main types of pricing mechanism:fi xed and dynamic pricing.5 38. 33Fixed Menu PricingPricing MechanismsPredefined prices are based on static variablesDynamic PricingPrices change based on market conditionsList price Fixed prices for individual products, services,or other Value PropositionsNegotiation(bargaining)Price negotiated between two or more partnersdepending on negotiation power and/or negotiation skillsProduct featuredependentPrice depends on the number or quality ofValue Proposition featuresYield management Price depends on inventory and time of purchase(normally used for perishable resources such as hotelrooms or airline seats)Customer segmentdependentPrice depends on the type and characteristicof a Customer SegmentReal-time-market Price is established dynamically based on supplyand demandVolume dependent Price as a function of the quantity purchased Auctions Price determined by outcome of competitive bidding 39. 34KrKey ResourcesThe Key Resources Building Block describesthe most important assets required to make abusiness model workEvery business model requires Key Resources. These resourcesallow an enterprise to create and oer a Value Proposition, reachmarkets, maintain relationships with Customer Segments, andearn revenues. Dierent Key Resources are needed depending onthe type of business model. A microchip manufacturer requirescapital-intensive production facilities, whereas a microchip designerfocuses more on human resources.Key resources can be physical, fi nancial, intellectual, or human.Key resources can be owned or leased by the company or acquiredfrom key partners.6 40. 35What Key Resources do our Value Propositions require?Our Distribution Channels? Customer Relationships?Revenue Streams?Key Resources can be categorized as follows:PhysicalThis category includes physical assets such asmanufacturing facilities, buildings, vehicles, machines,systems, point-of-sales systems, and distributionnetworks. Retailers like Wal-Mart and Amazon.comrely heavily on physical resources, which are oftencapital-intensive. The former has an enormous globalnetwork of stores and related logistics infrastructure.The latter has an extensive IT, warehouse, and logisticsinfrastructure.IntellectualIntellectual resources such as brands, proprietaryknowledge, patents and copyrights, partnerships,and customer databases are increasingly importantcomponents of a strong business model. Intellectualresources are diicult to develop but when success-fullycreated may oer substantial value. Consumergoods companies such as Nike and Sony rely heavilyon brand as a Key Resource. Microsoft and SAPdepend on software and related intellectual propertydeveloped over many years. Qualcomm, a designerand supplier of chipsets for broadband mobiledevices, built its business model around patentedmicrochip designs that earn the company substantiallicensing fees.HumanEvery enterprise requires human resources, butpeople are particularly prominent in certain businessmodels. For example, human resources are crucial inknowledge-intensive and creative industries. A phar-maceuticalcompany such as Novartis, for example,relies heavily on human resources: Its business modelis predicated on an army of experienced scientistsand a large and skilled sales force.FinancialSome business models call for financial resourcesand/or financial guarantees, such as cash, lines ofcredit, or a stock option pool for hiring key employ-ees.Ericsson, the telecom manufacturer, providesan example of financial resource leverage within abusiness model. Ericsson may opt to borrow fundsfrom banks and capital markets, then use a portion ofthe proceeds to provide vendor financing to equipmentcustomers, thus ensuring that orders are placed withEricsson rather than competitors. 41. KAKey ActivitiesThe Key Activities Building Block describesthe most important things a company must doto make its business model workEvery business model calls for a number of Key Activities. Theseare the most important actions a company must take to operatesuccessfully. Like Key Resources, they are required to create andoer a Value Proposition, reach markets, maintain CustomerRelationships, and earn revenues. And like Key Resources, KeyActivities dier depending on business model type. For softwaremaker Microsoft, Key Activities include software development.For PC manufacturer Dell, Key Activities include supply chainmanagement. For consultancy McKinsey, Key Activities includeproblem solving.7 42. 37What Key Activities do our Value Propositions require?Our Distribution Channels? Customer Relationships?Revenue streams?Key Activities can be categorized as follows:ProductionThese activities relate to designing, making, anddelivering a product in substantial quantities and/orof superior quality. Production activity dominates thebusiness models of manufacturing firms.Problem solvingKey Activities of this type relate to coming up withnew solutions to individual customer problems.The operations of consultancies, hospitals, and otherservice organizations are typically dominated byproblem solving activities. Their business models callfor activities such as knowledge management andcontinuous training.Platform/networkBusiness models designed with a platform as a KeyResource are dominated by platform or network-relatedKey Activities. Networks, matchmakingplatforms, software, and even brands can function asa platform. eBays business model requires that thecompany continually develop and maintain its plat-form:the Web site at eBay.com. Visas business modelrequires activities related to its Visa credit cardtransaction platform for merchants, customers, andbanks. Microsofts business model requires managingthe interface between other vendors software and itsWindows operating system platform. Key Activi-tiesin this category relate to platform management,service provisioning, and platform promotion. 43. KPKey PartnershipsThe Key Partnerships Building Block describesthe network of suppliers and partners that makethe business model workCompanies forge partnerships for many reasons, and partnershipsare becoming a cornerstone of many business models. Companiescreate alliances to optimize their business models, reduce risk, oracquire resources.We can distinguish between four dierent types of partnerships:1. Strategic alliances between non-competitors2. Coopetition: strategic partnerships between competitors3. Joint ventures to develop new businesses4. Buyer-supplier relationships to assure reliable supplies8 44. 39Who are our Key Partners? Who are our key suppliers?Which Key Resources are we acquiring from partners?Which Key Activities do partners perform?It can be useful to distinguish between threemotivations for creating partnerships:Optimization and economy of scaleThe most basic form of partnership or buyer-supplierrelationship is designed to optimize the allocation ofresources and activities. It is illogical for a company toown all resources or perform every activity by itself.Optimization and economy of scale partnerships areusually formed to reduce costs, and often involveoutsourcing or sharing infrastructure.Reduction of risk and uncertaintyPartnerships can help reduce risk in a competitiveenvironment characterized by uncertainty. It is notunusual for competitors to form a strategic alliancein one area while competing in another. Blu-ray, forexample, is an optical disc format jointly developedby a group of the worlds leading consumer electron-ics,personal computer, and media manufacturers.The group cooperated to bring Blu-ray technology tomarket, yet individual members compete in sellingtheir own Blu-ray products.Acquisition of particular resources and activitiesFew companies own all the resources or perform allthe activities described by their business models.Rather, they extend their own capabilities by relyingon other firms to furnish particular resources orperform certain activities. Such partnerships can bemotivated by needs to acquire knowledge, licenses, oraccess to customers. A mobile phone manufacturer,for example, may license an operating system for itshandsets rather than developing one in-house. Aninsurer may choose to rely on independent brokers tosell its policies rather than develop its own sales force. 45. C$Cost StructureThe Cost Structure describes all costs incurred tooperate a business modelThis building block describes the most important costs incurredwhile operating under a particular business model. Creating and de-liveringvalue, maintaining Customer Relationships, and generatingrevenue all incur costs. Such costs can be calculated relatively easilyafter defi ning Key Resources, Key Activities, and Key Partnerships.Some business models, though, are more cost-driven than others.So-called no frills airlines, for instance, have built business modelsentirely around low Cost Structures.9 46. 41What are the most important costs inherent in our businessmodel? Which Key Resources are most expensive? WhichKey Activities are most expensive?Naturally enough, costs should be minimized in everybusiness model. But low Cost Structures are moreimportant to some business models than to others.Therefore it can be useful to distinguish between twobroad classes of business model Cost Structures:cost-driven and value-driven (many business modelsfall in between these two extremes):Cost-drivenCost-driven business models focus on minimizingcosts wherever possible. This approach aims atcreating and maintaining the leanest possibleCost Structure, using low price Value Propositions,maximum automation, and extensive outsourcing.No frills airlines, such as Southwest, easyJet, andRyanair typify cost-driven business models.Value-drivenSome companies are less concerned with the costimplications of a particular business model design,and instead focus on value creation. Premium ValuePropositions and a high degree of personalized serviceusually characterize value-driven business models.Luxury hotels, with their lavish facilities and exclusiveservices, fall into this category.Cost Structures can have the following characteristics:Fixed costsCosts that remain the same despite the volume ofgoods or services produced. Examples include salaries,rents, and physical manufacturing facilities. Somebusinesses, such as manufacturing companies, arecharacterized by a high proportion of fixed costs.Variable costsCosts that vary proportionally with the volume ofgoods or services produced. Some businesses, such asmusic festivals, are characterized by a high proportionof variable costs.Economies of scaleCost advantages that a business enjoys as its outputexpands. Larger companies, for instance, benefit fromlower bulk purchase rates. This and other factorscause average cost per unit to fall as output rises.Economies of scopeCost advantages that a business enjoys due to a largerscope of operations. In a large enterprise, for example,the same marketing activities or Distribution Channelsmay support multiple products. 47. The Business Model CanvasKP KA VP CRCSCHKRC$ R$The nine business model Building Blocks formthe basis for a handy tool, which we call theBusiness Model Canvas.This tool resembles a painters canvaspreformat-tedwith the nine blockswhich allows you to paintpictures of new or existing business models.The Business Model Canvas works best when printedout on a large surface so groups of people can jointlystart sketching and discussing business modelelements with Post-it notes or board markers.It is a hands-on tool that fosters understanding,discussion, creativity, and analysis. 48. 43 43} 49. 44 The Business Model CanvasKeyPartnersCostStructureKeyResourcesChannelsKeyActivitiesValuePropositionCustomerRelationshipsCustomerSegmentsRevenueStreams 50. 45 51. 46 VP CRKP KA CSCHKRC$ R$ 52. 47Example: Apple iPod/iTunes Business ModelIn 2001 Apple launched its iconic iPod brand of por-tablemedia player. The device works in conjunctionwith iTunes software that enables users to transfermusic and other content from the iPod to a computer.The software also provides a seamless connectionto Apples online store so users can purchase anddownload content.This potent combination of device, software, andonline store quickly disrupted the music industry andgave Apple a dominant market position. Yet Apple wasnot the first company to bring a portable media playerto market. Competitors such as Diamond Multimedia,with its Rio brand of portable media players, were suc-cessfuluntil they were outpaced by Apple.How did Apple achieve such dominance? Because itcompeted with a better business model. On the onehand, it oered users a seamless music experience bycombining its distinctively designed iPod devices withiTunes software and the iTunes online store. ApplesValue Proposition is to allow customers to easilysearch, buy, and enjoy digital music. On the other hand,to make this Value Proposition possible, Apple had tonegotiate deals with all the major record companies tocreate the worlds largest online music library.The twist? Apple earns most of its music-relatedrevenues from selling iPods, while using integrationwith the online music store to protect itself fromcompetitors. 53. left brainlogicright brainemotion 54. KP KA VP CRCSCHKRC$ R$left canvaseffi ciency 55. The public sector is often challengedto implement private sector principles.I have used the Canvas to help adepartment view itself as a service-orientedbusiness,establishingexternalized as-isand to-be businessmodels.It has created a whole new conversa-tionaround describing and innovatingthe business.Mike Lachapelle, CanadaI consult with small companies on usingthe freemium business model. Thismodel involves giving core productsaway for free, which is very counterin-tuitiveto most businesspeople. Thanksto the Business Model Canvas, I caneasily illustratehow it makesfinancial sense.Peter Froberg, DenmarkI help business owners plan their transi-tionand exit from their companies.Success depends on sustaining long-termcompany viability and growth. Keyto this is a business model innovationprogram. The Canvas helps us identifyand innovate their business models.Nicholas K. Niemann, United StatesIm using the Business Model Canvas inBrazil to help artists, cultural producers,and game designers to envision innova-tivebusiness models for the Culturaland Creative Industries. I apply it in theCultural Production MBA at FGV and inthe Innovation Games Lab at COPPE/UFRJ Business Incubator.Claudio D'Ipolitto, BrazilWhen you typically think of a businessmodel, the conclusion is that it is a 'forprofit' business. However, I found thatthe Canvas is also very effective in thenon-profit sector. We used it toDESIGN+ ALIGNmembers of the leadership team duringthe formation of a new non-profitprogram. The Canvas was flexibleenough to take into account the goalsof this social entrepreneurial venture,and bring clarity to the true ValueProposition of the business and howto make it sustainable.Kevin Donaldson, United StatesI wish I had known the Canvas yearsago! With a particular tough andcomplicated print-to-digital projectwithin the publishing industry it wouldhave been so helpful toshow all projectmembers in thisvisual way boththe big picture,their (important)own roles in itand the inter-dependencies.Hours of explaining, arguing, and mis-understandingcould have been saved.Jille Sol, NetherlandsA close friend was looking for a newjob. I used the Business ModelCanvas in order to assess herpersonal business model.Her core competences and ValueProposition were outstanding butshe failed to leverage her strategicpartners and develop appropriateCustomer Relationships. This adjustedfocus opened new opportunities.Daniel Pandza, Mexicohowdo youuse thecanvas?50 56. Imagine 60 first-year students, knowingnothing about entrepreneurship. In lessthan five days, thanks to the BusinessModel Canvas, they were able to pitcha viable idea with conviction and clarity.They used it as a tool to cover all thestartup-building dimensions.Guilhem Bertholet, FranceI use the Business Model Canvas toteach early stage entrepreneursacross a wide range of industries asa much better way totranslatetheir businessplansinto the businessprocessesthat they (will) need to operate theirbusinesses and to ensure that they arefocused properly on being customer-centricin a way that makes the businessas highly profitable as it can be.Bob Dunn, United StatesI have used the Canvas with aco-founder to design a business planfor a national level contest held byThe Economic Times, India. TheCanvas enabled me to think throughall the aspects of the startup and puttogether a plan that VCs might find wellthought out and attractive to fund.Praveen Singh, IndiaWe were asked to redesign the languageservice of an international NGO. TheBusiness Model Canvas was especiallyhelpful to show the links betweenthe needs of peoples day-to-daywork and a service that was felttoo specialized, considered only as anafterthought, and far away from theirpriorities.Paola Valeri, SpainAs a startup coach I support teams tocreate new products and design theirbusinesses. The Business Model Canvasdoes a great job assisting me toremind theteams to thinkholistically abouttheir businessand preventsthem fromgetting stuckon details. This helps tomake their new venture a success.Christian Schller, GermanyThe Business ModelCanvas has allowedme to establish acommon languageand framework withcolleagues.I've used the Canvas to explore newgrowth opportunities, assess usesof new business models by competitors,and to communicate across theorganization how we couldaccelerate technology, market, andbusiness model innovations.Bruce MacVarish, United StatesThe Business Model Canvas has helpedseveral health care organizations in theNetherlands to make the move froma budget driven governmentalinstitution to an entrepreneurialvalue-adding organization.Huub Raemakers, NetherlandsI used the Canvas with senior managersof a public company to help themrestructure their value chain due tochanges in sector regulation. The keysuccess factor was to understand whichnew Value Propositions could be offeredto their clients and then translated intointernal operations.Leandro Jesus, BrazilWe used 15,000post-its andmore than100 meters ofbrown paperto design a future organizational struc-turein a global manufacturing company.The key of all activities was, however,the Business Model Canvas. It con-vincedus by its practical applicability,simplicity, and logical cause-and-effectrelationships.Daniel Egger, BrazilI used the Canvas to do areality checkfor my new startup Mupps, a platformwhere artists can make their own musicapps for iPhone and Android phonesin minutes. You know what? The Canvasmade me even surer of the possiblesuccess! So I gotta go, work to do!Erwin Blom, NetherlandsThe Business Model Canvas has provento be a very useful tool for capturingideas and solutions for e-commerceprojects. Most of my clients are SMEsand the Canvas helps them toclarify their currentbusiness models andunderstand and focus on the impactof e-commerce on their organizations.Marc Castricum, NetherlandsI applied the Canvas to help a companyalign key staff in order to determineshared goals and strategic priorities,which were used during the planningprocess and incorporated with the BSC.It also ensured that the chosen initia-tiveswere clearly driven by the newstrategic priorities.Martin Fanghanel, Bolivia51 57. Patterns 58. Patterns 59. Pattern in architectureis the idea of capturingarchitectural design ideasas archetypal and reusabledescriptions.Christopher Alexander, Architect 60. This section describes business models with similar characteristics,similar arrangements of business model Building Blocks, or similarbehaviors. We call these similarities business model patterns. Thepatterns described in the following pages should help you understandbusiness model dynamics and serve as a source of inspiration foryour own work with business models.Weve sketched out five business model patterns built on importantconcepts in the business literature. Weve translated these intothe language of the Business Model Canvas to make the conceptscomparable, easy to understand, and applicable. A single businessmodel can incorporate several of these patterns.Concepts upon which our patterns are based include Unbundling,the Long Tail, Multi-Sided Platforms, FREE, and Open Business Models.New patterns based on other business concepts will certainly emergeover time.Our goal in defining and describing these business model patterns isto recast well-known business concepts in a standardized formattheBusiness Model Canvasso that they are immediately useful in yourown work around business model design or invention.Patterns56 Unbundling BusinessModels66 The Long Tail76 Multi-Sided Platforms88 FREE as a Business Model108 Open Business Models 61. Un-BundlingBusinessModels 62. unbundling Business Patterns57patternsDef_Pattern No. 1The concept of the unbundled corpora-tionholds that there are three fundamentallydierent types of businesses: Customer Rela-tionshipbusinesses, product innovation busi-nesses,and infrastructure businesses. Eachtype has dierent economic, competitive, andcultural imperatives. The three types mayco-exist within a single corporation, but ideallythey are unbundled into separate entities inorder to avoid conflicts or undesirable trade-os.[ references ]1 Unbundling theCorporation. HarvardBusiness Review. Hagel,John, Singer, Marc.MarchApril 1999.2 The Discipline of MarketLeaders: Choose YourCustomers, Narrow YourFocus, Dominate YourMarket. Treacy, Michael,Wiersema, Fred. 1995.[ examples ]mobile telecom industry,private banking industry 63. 58paTTernsJohn Hageland Marc Singer, who coinedthe term unbundled corporation,believe that companies are composed of threevery dierent types of businesses with dierenteconomic, competitive, and cultural imperatives:Customer Relationship businesses, product innovationbusinesses, and infrastructure businesses. Similarly,Treacy and Wiersema suggest that companiesshould focus on one of three value disciplines:operational excellence, product leader-ship,or customer intimacy.On theBundledfollowing pages weshow how the idea of unbundlingapplies to business models. In the fi rstexample, we describe the confl icts andUnbundling Unbundled!undesirable trade-os created by a bundledbusiness model within the private bankingindustry. In the second example we showhow mobile telecom operators areunbundling and focusing on newcore businesses.132 Hagel and Singerdescribe the role of CustomerRelationship businesses as fi nding andacquiring customers and building relationshipswith them. Similarly, the role of product innovationbusinesses is to develop new and attractive products andservices, while the role of infrastructure businesses is to buildand manage platforms for high volume, repetitive tasks. Hageland Singer argue that companies should separate thesebusinesses and focus on only one of the three internally.Because each type of business is driven by dierentfactors, they can confl ict with each other orproduce undesirable trade-os within thesame organization.unbundling business Models 64. unbundling Business Patterns59patternsProductInnovationTHREE CORE BUSINESS TYPESCustomer RelationshipManagementInfrastructureManagementEconomicsEarly market entry enables chargingpremium prices and acquiring largemarket share; speed is keyHigh cost of customer acquisitionmakes it imperative to gain large walletshare; economies of scope are keyHigh fixed costs make large volumesessential to achieve low unit costs;economies of scale are keyCultureBattle for talent; low barriers to entry;many small players thriveBattle for scope; rapid consolidation;a few big players dominateBattle for scale; rapid consolidation;a few big players dominateCompetitionEmployee centered; coddling thecreative starsHighly service oriented; customer-comes-first mentalityCost focused; stresses standardization,predictability, and eiciencySource: Hagel and Singer, 1999. 65. Private Banking:Three Businesses in OneSwiss private banking, the business of provid-ingbanking services to the very wealthy, waslong known as a sleepy, conservative industry.Yet over the last decade the face of the Swissprivate banking industry changed consider-ably.Traditionally, private banking institutionswere vertically integrated and performed tasksranging from wealth management to brokerageto fi nancial product design. There were soundreasons for this tight vertical integration. Out-sourcingwas costly, and private banks preferredkeeping everything in-house due to secrecy andconfi dentiality concerns.But the environment changed. Secrecybecame less of an issue with the demise of themystique surrounding Swiss banking practices,and outsourcing became attractive with thebreakup of the banking value chain due to theemergence of specialty service providers suchas transaction banks and fi nancial product bou-tiques.The former focus exclusively on handlingbanking transactions, while the latter concen-tratesolely on designing new fi nancial products.Zurich-based private banking institutionMaerki Baumann is an example of a bank thathas unbundled its business model. It spun o itstransaction-oriented platform business into aseparate entity called Incore Bank, which oersbanking services to other banks and securitiesdealers. Maerki Baumann now focuses solelyon building Customer Relationships andadvising clients.On the other hand, Geneva-based Pictet,the largest Swiss private bank, has preferred toremain integrated. This 200-year-old institutiondevelops deep Customer Relationships, handlesmany client transactions, and designs its ownfi nancial products. Though the bank has beensuccessful with this model, it has to carefullymanage trade-os between three fundamentallydierent types of businesses.The fi gure oppositedepicts the traditionalprivate banking model,describes trade-os,and unbundles it intothree basic businesses:relationship management,product innovation,and infrastructuremanagement.unbundling business Models60patterns 66. 61patternsTrade Offs1 The bank serves two dierent markets withvery dierent dynamics. Advising the wealthyis a long-term, relationship-based business.Selling fi nancial products to private banks isa dynamic, fast-changing business.2 The bank aims to sell its products tocompeting banks in order to increaserevenuesbut this creates a confl ict of interest.3 The banks product division pressures advi-sorsto sell the banks own products to clients.This confl icts with client interest in neutraladvice. Clients want to invest in the bestproducts on the market, regardless of origin.4 The cost- and eiciency-focused transactionplatform business confl icts with the remuneration-intensiveadvisory and fi nancial products business,which needs to attract costly talent.5 The transaction platform business requiresscale to drive down costs, which is diicult toachieve within a single bank.6 The product innovation business is drivenby speed and quick market entry, which is atodds with the long-term business of advisingthe wealthy.other productprovidersadvise6product rdmarketingplatformmanagement custom-tailoredwealth manage-mentservicesfi nancialproductstransactionmanagement1intimatepersonalrelationshipkey accountmanagementwealthyindividuals familiesprivate banksprivate banksindependentfi nancialadvisorsbrand/trustproduct iptransactionplatformpersonalnetworkssales forcetransactionplatformplatform managementhr: rdhr: private bankersmanagementadvisory feesproductperformance feestransaction feesThe Private Banking Model RelationshipBusiness Product InnovationBusiness InfrastructureBusiness24 35unbundling business patterns 67. Unbundling theMobile TelcoMobile telecommunication fi rms have startedunbundling their businesses. Traditionally theycompeted on network quality, but now they arestriking network sharing deals with competitorsor outsourcing network operations altogetherto equipment manufacturers. Why? Becausethey realize that their key asset is no longer thenetworkit is their brand and their CustomerRelationships.telecomequipmentsuppliersInfrastructure Managementnetworkmaintenanceservicesprovisioningmarketing voicedatacontentacquisitionretentioninstalledcustomer basenetworkbrandcustomerbaseCustomer Relationshipretailnetwork maintenancemarketingvoicedataservice revenuesProduct Innovationunbundling business Models62patterns 68. 63patternsEquipment ManufacturersTelcos such as France Telecom, KPN, and Vodafone have outsourced operationand maintenance of some of their networks to equipment manufacturers suchas Nokia Siemens Networks, Alcatel-Lucent, and Ericsson. Equipment manufac-turerscan run the networks at lower cost because they service several telcos ata time and thus benefi t from economies of scale.Unbundled TelcoAfter unbundling its infrastructure business, a telco can sharpen its focus onbranding and segmenting customers and services. Customer relationshipscomprise its key asset and its core business. By concentrating on customersand increasing share of wallet with current subscribers, it can leverage invest-mentsmade over the years acquiring and retaining customers. One of the fi rstmobile telcos to pursue strategic unbundling was Bharti Airtel, now one ofIndias leading telcos. It outsourced network operations to Ericsson and NokiaSiemens Networks and IT infrastructure to IBM, allowing the company to focuson its core competency: building Customer Relationships.Content ProvidersFor product and service innovation, the unbundled telco can turn to smaller,creative fi rms. Innovation requires creative talent, which smaller and moredynamic organizations typically do a better job of attracting. Telcos workwith multiple third-parties that assure a constant supply of new technologies,services, and media content such as mapping, games, video, and music. Twoexamples are Mobilizy of Austria and Swedens tat. Mobilizy focuses onlocation-based service solutions for smartphones (it developed a popular mobiletravel guide), and tat concentrates on creating advanced mobile user interfaces.networkmaintenanceservicesprovisioning networkrdinfrastruc-tureoperation maintenancenewproducts servicestelcosintel-lectualpropertylicensing feesnetworkoperatorsvoicedatacontentacquisitionretentioninstalledcustomerbasebrandcustomerbaseretailmarketing service revenuestelcosnetworkeconomies of scaleunbundling business patterns 69. 64UnbundledPatterns3unbundling business ModelsKPC$CS KP KAVP CRCHKRR$ C$Everything in this model istailored to understandingand serving customers, orbuilding strong CustomerRelationshipsProduct and service innova-tion,infrastructure acquiredfrom third partieskey assets and resourcesare the customer base andsubscriber trust acquiredover timeThis model aims at generatingrevenues with a broad scopeof products built upon customertrustthe goal is to win a largeshare of walletCustomer acquisition andretention comprise maincosts, which include brand-ingand marketing expensespatterns 70. unbundling business Models65patternsactivity is focused on lever-agingresearch and develop-mentto bring new productsand services to marketCS KAwVP CRCHKRR$Products and servicescan be brought to marketdirectly, but are usuallydelivered through B2Bintermediaries focused oncustomer relationshipsHigh cost base due to thebattle over creative talent,the key resource in thismodelServices are usually deliv-eredto business customersThe activities and oerare focused on deliveringinfrastructure servicesCS KP KArevenues are based on lowmargins and high volumePlatform is characterized byhigh fi xed costs, which areleveraged through scale andlarge volumeppppaaaatttttttteeeerrrrnnnnssssVP CRCHKRR$ C$High premium chargeablebecause of novelty factor 71. TheLongTail 72. the long tail67patternslong tail business models are about selling lessof more: They focus on oering a large numberof niche products, each of which sells relativelyinfrequently. Aggregate sales of niche itemscan be as lucrative as the traditional modelwhereby a small number of bestsellers accountfor most revenues. Long Tail business modelsrequire low inventory costs and strong plat-formsto make niche content readily availableto interested buyers.[ references ]1 The Long Tail: Whythe Future of BusinessIs Selling Less of More.Anderson, Chris. 2006.2 The Long Tail. WiredMagazine. Anderson,Chris. October 2004.[ examples ]Netflix, eBay, YouTube,Facebook, Lulu.comDef_Pattern No. 2 73. TheLongTailconceptwas coined byChris Andersonto describe a shift inthe media business fromselling a small number of hititems in large volumes towardselling a very large number of nicheitems, each in relatively small quantities.Anderson described how many infrequent salescan produce aggregate revenues equivalent to oreven exceeding revenues produced by focusing onhit products.Anderson believes three economic triggers gaverise to this phenomenon in the media industry:1. Democratization of tools of production: Fallingtechnology costs gave individuals access to toolsthat were prohibitively expensive just a few yearsago. Millions of passionate amateurs can nowrecord music, produce short fi lms, and designsimplesoftwarewith professionalresults.2. Democratization of distribution: The Internethas made digital content distribution a commod-ity,and dramatically lowered inventory, commu-nications,and transaction costs, opening up newmarkets for niche products.3. Falling search costs to connect supply withdemand: The real challenge of selling niche contentis fi nding interested potential buyers. Powerfulsearch and recommendation engines, user ratings,and communities of interest have made thismuch easier.# of SalesTOP20%Focus on a smallnumber of products,each selling in high volume 74. paTTerns THe long Tail69LONG TAIL Focus on a large number of products, each selling in low volumesAndersons research focuses primarily on the mediaindustry. For example, he showed how online videorental company Netfl ix moved toward licensing alarge number of niche movies. While each nichemovie is rented relatively infrequently, aggregaterevenue from Netfl ixs vast niche fi lm catalog rivalsthat from the rental of blockbuster movies.But Anderson demonstrates that the Long Tailconcept applies outside the media industry as well.The success of online auction site eBay is based ona huge army of auctioneers selling and buying smallquantities of non-hit items.# of Products 75. the long tail70patternsThe Transformation of theBook Publishing IndustryOld ModelWeve all heard about aspiring authors who carefully craft and submitmanuscripts to publishing houses in the hope of seeing their work inprintand face constant rejection. This stereotypical image of publishersand authors holds much truth. The traditional book publishing modelis built on a process of selection whereby publishers screen many authorsand manuscripts and select those that seem most likely to achieve mini-mumsales targets. Less promising authors and their titles are rejectedbecause it would be unprofi table to copyedit, design, print, and promotebooks that sell poorly. Publishers are most interested in books they canprint in quantity for sale to large audiences.-contentacquisitionpublishingsales broadcontent(ideallyhits)broadaudiencepublishingknowledgecontentretailnetworkpublishing / marketing wholesale revenues 76. patterns the long tail71A New ModelLulu.com turned the traditional bestseller-centric publishing model onits head by enabling anyone to publish. Lulu.coms business model isbased on helping niche and amateur authors bring their work to market.It eliminates traditional entry barriers by providing authors the tools tocraft, print, and distribute their work through an online marketplace. Thiscontrasts strongly with the traditional model of selecting market-worthywork. In fact, the more authors Lulu.com attracts, the more it succeeds,because authors become customers. In a nutshell, Lulu.com is a multi-sidedplatform (see p. 76) that serves and connects authors and readerswith a Long Tail of user-generated niche content. Thousands of authorsuse Lulu.coms self-service tools to publish and sell their books. Thisworks because books are printed only in response to actual orders. Thefailure of a particular title to sell is irrelevant to Lulu.com, because sucha failure incurs no costs.-platformdevelopmentlogistics self-publish-ingservicesmarketplacefor nichecontentcommunitiesof interestonlineprofi le nicheauthorsnicheaudiencesplatformprint-on-demandinfrastruc-turelulu.complatform management developmentsales commissions (low)publishing service fees 77. patterns the long tail72LEGOs New Long TailThe Danish toy company LEGO started manu-facturingits now famous interlocking bricksin 1949. Generations of children have playedwith them, and LEGO has released thousandsof kits around a variety of themes, includingspace stations, pirates, and the Middle Ages. Butover time, intensifying competition in the toyindustry forced LEGO to seek innovative newpaths to growth. It started licensing the rightsto use characters from blockbuster movies suchas Star Wars, Batman, and Indiana Jones. Whilesuch licensing is expensive, it proved to be animpressive revenue generator.In 2005 LEGO started experimenting withuser-generated content. It introduced LEGOFactory, which allows customers to assembletheir very own LEGO kits and order themonline. Using software called LEGO DigitalDesigner, customers can invent and design theirown buildings, vehicles, themes, and characters,choosing from thousands of components anddozens of colors. Customers can even design thebox containing the customized kit. With LEGOFactory, LEGO turned passive users into activeparticipants in the LEGO design experience.This requires transforming the supply chaininfrastructure, and because of low volumesLEGO has not yet fully adapted its supportinfrastructure to the new LEGO Factory model.Instead, it simply tweaked existing resourcesand activities.In terms of a business model, though, LEGOtook a step beyond mass customization by enter-ingLong Tail territory. In addition to helpingusers design their own LEGO sets, LEGO Fac-torynow sells user-designed sets online. Somesell well; some sell poorly or not at all. Whatsimportant for LEGO is that the user-designedsets expand a product line previously focusedon a limited number of best-selling kits. Todaythis aspect of LEGOs business accounts for onlya small portion of total revenue, but it is a fi rststep towards implementing a Long Tail modelas a complementor even alternativeto atraditional mass-market model.LEGO+LEGO users can maketheir own designsand order them online=LEGO Factory+LEGO allows usersto post and sell theirdesigns online=LEGO Users Catalog 78. patterns the long tail73LEGO Factory: Customer-Designed KitsKP KA CSCustomers who buildnew LEGO designs andpost them online becomekey partners generatingcontent and valueLEGO has to provideand manage theplatform and logisticsthat allow packagingand delivery of custom-madeLEGO setsVP CRLEGO Factory substan-tiallyexpands the scopeof the o-the-shelfkit oering by givingLEGO fans the tools tobuild, showcase, andsell their own custom-designedkitsLEGO Factory builds aLong Tail communityaround customers whoare truly interested inniche content and wantto go beyond o-the-shelfretail kitsThousands of new,customer-designed kitsperfectly complementLEGOs standard setsof blocks. LEGO Factoryconnects customerswho create customizeddesigns with other cus-tomers,thus becominga customer match-makingplatform andincreasing salesLEGO has not yet fullyadapted its resourcesand activities, which areoptimized primarily forthe mass marketCHLEGO Factorys existencedepends heavily on theWeb channelLEGO Factory leverages production and logistics costs alreadyincurred by its traditional retail modelLEGO Factory aims to generate small revenues from a large numberof customer-designed items. This represents a valuable addition totraditional high-volume retail revenuesKRC$ R$ 79. the long tail74patternsLong TailPattern 80. the long tail75patternsThe value proposition ofa Long Tail business modelis characterized by oeringa wide scope of non-hititems that may co-existwith hit products. LongTail business models mayalso facilitate and build onuser-generated content.KP KA VP CRCSCHKRC$ R$This model is based onaggregating small revenuesfrom a large number ofitems. revenue streamsvary; they may come fromadvertising, product sales,or subscriptions.Niche content providers(professional and/oruser-generated) are thekey partners in this pattern.The key resource is theplatform; key activitiesinclude platform develop-mentand maintenance andniche content acquisitionand production.The main costs incurredcover platform developmentand maintenanceA Long Tail business modelcan serve both profes-sionaland amateur contentproducers, and may createa multi-sided platform (seep. 76) catering to users andproducers alike.Long Tail business modelsfocus on niche customers.Long Tail business modelsusually rely on the Internetas a customer relationshipand/or transaction channel. 81. Multi-SidedPlatforms 82. Multi-Sided Platforms77patternsmulti-sided platforms bring together two ormore distinct but interdependent groups ofcustomers. Such platforms are of value toone group of customers only if the other groupsof customers are also present. The platformcreates value by facilitating interactions betweenthe dierent groups. A multi-sided platformgrows in value to the extent that it attractsmore users, a phenomenon known as thenetwork eect.[ references ]1 Strategies for Two-SidedMarkets. Harvard Busi-nessReview. Eisenmann,Parker, Van Alstyne.October 2006.2 Invisible Engines: HowSoftware Platforms DriveInnovation and TransformIndustries. Evans, Hagiu,Schmalensee. 2006.3 Managing the Mazeof Multisided Markets.StrategyBusiness.Evans, David. Fall 2003.[ examples ]Visa, Google, eBay,Microsoft Windows,Financial TimesDef_Pattern No. 3 83. MulTi-sided plaTForMs78paTTernsMulti-sided platforms, known by economists as multi-sidedmarkets, are an important business phenomenon.They have existed for a long time, but proliferated withthe rise of information technology. The Visa credit card,the Microsoft Windows operating system, the FinancialTimes, Google, the Wii game console, and Facebook arejust a few examples of successful multi-sided platforms.We address them here because they represent anincreasingly important business model pattern.What exactly are multi-sided platforms? They areplatforms that bring together two or more distinct butinterdependent groups of customers. They create valueas intermediaries by connecting these groups. Creditcards, for example, link merchants with cardholders;computer operating systems link hardware manufac-turers,application developers, and users; newspaperslink readers and advertisers; video gaming consoleslink game developers with players. The key is that theplatform must attract and serve all groups simultane-ouslyin order to create value. The platforms value fora particular user group depends substantially on thenumber of users on the platforms other sides. A videogame console will only attract buyers if enough gamesare available for the platform. On the other hand, gamedevelopers will develop games for a new video consoleonly if a substantial number of gamers already use it.Hence multi-sided platforms often face a chicken andegg dilemma.One way multi-sided platforms solve this problem is bysubsidizing a Customer Segment. Though a platformoperator incurs costs by serving all customer groups, itoften decides to lure one segment to the platform withan inexpensive or free Value Proposition in order tosubsequently attract users of the platforms other side.One diiculty multi-sided platform operators face isunderstanding which side to subsidize and how to pricecorrectly to attract customers.CustomerSegment ASegments 2 84. MulTi-sided plaTForMs79paTTernsOne example is Metro, the free daily newspaper thatoriginated in Stockholm and can now be found inmany large cities worldwide. It launched in 1995 andimmediately attracted a large readership because itwas distributed free of charge to urban commutersin train and bus stations throughout Stockholm. Thisallowed it to attract advertisers and rapidly becomeprofi table. Another example is Microsoft, which gaveits Windows software development kit (SDK) awayfor free to encourage development of new applicationsfor its operating system. The larger number of applica-tionsattracted more users to the Windows platformand increased Microsofts revenues. Sonys Playstation3 game console, on the other hand, is an example ofa multi-sided platform strategy that backfi red. Sonysubsidized each console purchased in hopes of latercollecting more game royalties. This strategy performedpoorly because fewer Playstation 3 games sold thanSony initially estimated.Operators of multi-sided platforms must ask them-selvesseveral key questions: Can we attract suicientnumbers of customers for each side of the platform?Which side is more price sensitive? Can that sidebe enticed by a subsidized oer? Will the other sideof the platform generate suicient revenues to coverthe subsidies?The following pages outline three examples of multi-sidedplatform patterns. First, we sketch Googlesmulti-sided platform business model. Then we showhow Nintendo, Sony, and Microsoft compete withslightly dierent multi-sided platform patterns. Finally,we describe how Apple has slowly evolved into anoperator of a powerful multi-sided platform.Segment BFACILITATEINTERACTIONSegment Netc.etc. 85. patterns Multi-sided platforMs80Googles Business ModelThe heart of Googles business model is its Value Proposition of providingextremely targeted text advertising globally over the Web. Through a servicecalled AdWords, advertisers can publish advertisements and sponsored linkson Googles search pages (and on an ailiated content network as we willlater see). The ads are displayed alongside search results when people usethe Google search engine. Google ensures that only ads relevant to the searchterm are displayed. The service is attractive to advertisers because it allowsthem to tailor online campaigns to specifi c searches and particular demo-graphictargets. The model only works, though, if many people use Googlessearch engine. The more people Google reaches, the more ads it can displayand the greater the value created for advertisers.Googles Value Proposition to advertisers depends heavily on the number ofcustomers it attracts to its Web site. So Goog