CCT 355: E-Business Technologies

Class 10: Business Model Generation continued…

Business Model Generation

• Nine core building blocks• All impacted by changes in technology• Changes in one block iterate among others

“Unbundled” Corporations

• Complex businesses often have different facets – customer relationships, product innovation, and infrastructure

• Analyzing each separately a good idea – what’s good for one might not be great for others

• The ties among these facets also important

Cell example

• Different components – companies are some mix of infrastructure, product innovation and customer relationship, and make alliances with partners to compensate

• Consider Canadian cell companies - Infrastructure? Innovation? Customer Relations? Depends on when you’re looking at them.

Long Tail Model

• Mass market – small margin, high volume, mass audience

• Long tail – high margin, low volume, small but loyal audience

• Publishing example – self-publishing services (e.g., Lulu.com) and online publishing open up new relations and jeopardize old models (e.g., Daily Beast buying Newsweek for $1)

Lego

• A mass market product exploiting niches well• Lego Factory – design your own Lego set• Identification of niche markets – e.g., the 30-

something vs. the 8 year old segments• Also a good example of targeting multiple

niche segments in different ways – e.g., Lego Universe

Multi-Sided Platforms

• Serving complementary segments• Leveraging network effects of synergy among

segments• Google needs a) dominance in search engine

market and b) related markets (e.g., Gmail, YouTube to c) sell advertising directly and c) indirectly through AdSense, etc.

• Failure to monetize would be disastrous – but also failure to monetize well, alienating base

Apple as Platform

• iPod – never envisioned just an MP3 player• iTunes – closely integrated, and moved quickly

to Windows• At same time, opening of Apple retail stores –

iPod became entry point into Apple world• iPhone and iPad continuation of strategy –

iTunes as media aggregator/common store• Perhaps too far now? Concerns of Apple as

hegemonic empire, esp. re: apps

Free as a Business Model

• The explosion of free – most social media sites, open-source software, etc.

• But where’s the money? Revenue models and free services

• Advertising is certainly part of it – from Facebook to newspapers, free consumption supported by ads is normal now

Freemium

• Free to try, pay for more – allows users to sample and use product at limited scope and encourages them to upgrade – examples?

• Open-source as freemium – why buy when you can get it for free? There are often good reasons

Bait and Hook

• Free/cheap to lock you in to expensive purchases later

• Mobile phone contracts and razors as examples

• Others?

Open Business Models

• Challenge to reduce costs and increase innovation – but how?

• NIH problem – outside information not trusted• Aggressive secrecy – if I share my idea, “they”

will steal it • Noted examples in high risk pools – e.g.,

pharma – but also things like basic research (e.g., why is much of the Internet is “free”?)

FSAE example

• Tires are fundamental to car design• Tire data is, unfortunately, very hard to come

by – especially with “freak” tires, data inconsistent, hard to come by, nonexistent

• Tire consortium driven by U of T initially – buys tires, tests independently, shares results with those who buy in to system

• All those buying in are direct competitors – cooptition is the guiding force

Environmental Influence

• Macroeconomics• Foresight• Competitive analysis• Market analysis

Market Forces

• Important customer segments?• Growth (decline) potential?• Customer needs and their evolution?• “lock-in” – buy in to model and switching

costs ?• Margin – what are customers willing to pay

(more) for?

Competitive Analysis

• Who are competitors? There adv/disadv?• New entrants – potentia and future?• Substitute products – what could displace us

entirely?• Value chain – changes in supply/distribution?• Other stakeholders – government,

shareholders, union, etc?

Foresight

• Technology trends – inside and outside market – disruptive potential?

• Regulatory trends – more/less regulation, changes in international/national treaties, etc?

• Social trends – cultural/social values and their influence

• Socioeconomic trends – changes in demographics, income levels and disposable income, etc.

Macroeconomics

• Boom/bust economy? Employment rate and quality?

• Capital markets – access to new capital, loans, VC, etc?

• Commodity markets – both human and material – how might changes impact?

• Infrastructure – benefits/limitations in physical and human infrastructure?

Amazon example

• 2005: IT strength, high scale, scope and reach, good brand reputation – but low margin, low value proposition, many potential similar competitors and dependence on alliances (e.g., payment methods

• 2006: Leveraged IT excellence to create new fulfillment options and Amazon Web Services – leading the cloud computing revolution

Blue Ocean Strategy

• Eliminate – what can we ignore completely?• Reduce – what we can reduce commitment

to?• Raise – what should we raise above industry

standard?• Create – what new factors can be introduced?

Cirque de Soleil Example

• Eliminated: traditional circus elements (animals, concessions)

• Reduced: focus on silliness, danger• Raised: Uniqueness of venue• Created: New thematics, musical dance

standards, multiple types of productions, global reach

Design Thinking

• Many hints and tips on visualization of models• 5 phases of design process:• 1) Mobilize• 2) Understand• 3) Design• 4) Implement• 5) Manage• Similar to change management model, in many ways