DEVELOPING A DYNAMIC BUSINESS MODEL FRAMEWORK FOR EMERGING MOBILE SERVICES

Björn Kijl

Björn Kijl, Delft University of Technology, Faculty of Technology, Policy, and Management, Section Information and Communication Technology, PO Box 5015, 2600 GA, Delft, The

Netherlands, bjornk@tbm.tudelft.nl

Harry Bouwman, Delft University of Technology, Faculty of Technology, Policy, and Management, Section Information and Communication Technology, PO Box 5015, 2600 GA,

Delft, The Netherlands, harryb@tbm.tudelft.nl

Timber Haaker, Telematica Instituut, Expertise group ‘Creating Value in Business Networks’, PO Box 589, 7500 AN, Enschede, The Netherlands, timber.haaker@telin.nl

Edward Faber, Telematica Instituut, Expertise group ‘Creating Value in Business Networks’, PO Box 589, 7500 AN, Enschede, The Netherlands, edward.faber@telin.nl

JEL-Codes:L21, L63, L86, M13, O32, O33

1 The growing importance of business model innovationIn a world where consumer electronics (CE), information technology (IT), telecom, and media are converging, tremendous opportunities for (user centric, demand based, and context aware) mobile services are emerging. With increasing marketplace dynamics and rapid technological developments, the ability to imagine and combine different, formerly separated, technological capabilities in order to facilitate new and valuable user experiences will be a key factor. To be able to offer these experiences, new business models are needed [10].Based on a survey of 4,018 executives worldwide and in-depth interviews with leading decision makers, the Economist Intelligence Unit [8] finds that companies that best understand dynamics like the ones mentioned above and adapt fastest to the emerging business landscape with innovative as well as adaptive business models will be the likeliest to prosper. In other words, innovative and adaptive business modeling is critically important to the future of (technological) innovation. There are many famous cases in which companies have developed disruptive technologies, but have failed to capitalize on them with viable accompanying business models. For example, the Xerox Palo Alto Research Center (PARC) invented a lot of interesting technologies but the shareholders of Xerox Corporation didn’t profit as much from these innovations as others did [6]. Eventually, the ability to innovate with business models and revise them regularly is equally important as innovation in products or services [8] because successful innovations often need innovative business models as much as innovative product offerings [5]. This is especially the case in the domain of mobile technologies, networks, and services.

2 Goal and contribution of this studyDespite the promising opportunities and huge investments in 3G+ technology and networks, it is still unclear how sustainable business models of emerging mobile services will look like. As a result of the radical transformations within the mobile services industry, many tested business models, as well as related frameworks, tools, and techniques, have become obsolete [3][17]. Whereas in practice we see business models, especially in a dynamic industry like the

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mobile services industry, change over time, literature, with a few exceptions [4][18][33], still takes a static view on business models. The objective of this paper is to propose a dynamic business model framework for emerging 2.5G and 3G+ services, which should help nodal actors within value networks to create customer and network value over time. More specific, the framework should, in the form of a business model evolution process model, help to analyze as well as govern dynamics of 2.5G and 3G+ services by providing high-level insight in the mechanisms behind business model changes. Unlike other business model research, we look at the dynamic character of business models by integrating venturing and life cycle phasing concepts as well as external influential factors on business model evolution into our framework. The framework will be validated on the basis of an illustrative case study by using the framework for shortly describing the business model dynamics of OP3, a company that pioneers with direct connection technology. Although the framework will be specifically applied to mobile services, it is expected that the framework may also be valuable in other contexts (e.g. e-service business model development).

In order to position and develop the framework, we focus on business model and value network literature and literature describing phasing concepts that can be used to describe the evolution of business models. We also look into (high-level) factors influencing business model dynamics.

3 Business models and value networks: a concise literature reviewOver the past few years business model research has developed from defining business models, via exploring business model components and classifying business models into categories, to developing descriptive models (for an overview see [25]). The business model concept plays a valuable role when simulating, analyzing, and understanding current or new business concepts and exploiting these concepts [24]. Besides, it supports managers communicating their ideas and visions about their company and its management to parties concerned.

In most business model definitions, we see, directly or indirectly, the assumption that a business model should describe ‘business logic’ behind value creation with a specific product or service. Main question then is how to create value, for the organizations as well as for their customers. In our view, a business model describes the way a company or network of companies aims to create customer and network value [11].

Moving away from business model definitions, the focus of business model research was directed to business model components. Based on an extensive literature review [9][11], we select the following four generic business model components for our business model framework:

Service Domain: the service concept and value proposition that organizations want to offer

Technology Domain: technical functions and architecture needed to realize the value proposition

Organizational Domain: agreements concerning the cooperation between organizations to deliver the value proposition

Financial Domain: costs, investments, revenues and risks, and agreements on how to divide them among organizations

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These four components can be used to describe the internal logic of business models and are similar to the components as for instance used by Osterwalder & Pigneur [24]. A graphical representation of the business model components is shown in Figure 1.

Figure 1 Components of a business model

A majority of business model researchers (e.g. Tapscott [30]; Timmers [32]; Weill & Vitale [35]) focus on the actors, relationships, and value objects being exchanged when describing business models. Hereby especially the organizational and to a lesser extent also the financial component of business models get attention. For describing and visualising how value is created concepts like value chains, value networks, and value shops are being used [29]. Because of the strong emphasis of business models on value creation by, mostly, a group of actors, business models and the value creation system concepts as mentioned above are strongly related and intertwined: changes in a business model mostly lead to changes in how value is created in e.g. a value network and vice versa. Essentially, all business models are variations on the generic value creation system underlying all businesses [19]. In the end, a viable and feasible business model should always deliver value to customers as well as to all other participating actors in the value creation system. Financial arrangements and organizational arrangements may play an important role in this context [11].

Looking specifically at mobile services, we see that the value networks of emerging mobile services are more dynamic and complex than the old, rather static telecom centric value chains for mobile services like voice communication: the old telecom value chain is slowly deconstructing and transforming towards a more complex value network with the entrance of new players and stakeholders [17]. It is expected that more and more flexible value networks will arise and replace the current, more traditional, static and linear value chains [22]. These new value networks have more as well as new players from different industries. These players are increasingly operating in each others, formerly separated, markets like IT, telecom, consumer electronics, and media [10]. By having a value network view, organizations are better able to recognize structural changes like this shift from traditional competition to complex networks of organizations [34].

An important aspect of mobile service value networks is that often one or more leading actors (nodal companies or orchestrators) in the value network can be identified [20]. These types of actors are the most powerful and therefore define where the centre of gravity and power of these value networks are. They also have a profound influence on business model (re)design. Therefore, it makes sense to think about where the centre of gravity in a value network lies

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and how and why it could transform in the future, in order to decide the feasibility of a (re)designed business model for a specific service. Especially actors with critical roles (like providing access to customers, offering communication network facilities, and taking care of billing), such as (mobile) telecommunication operators, have relatively powerful positions. However, opportunities emerge for service and content providers to (partially) by-pass these operators, for instance by making use of direct billing technologies.

4 Business model dynamics: phasing and factors of influenceIn discussions on business models concepts, the relation between external influences and business models is mostly missing. The same goes for the distinction of phases or key decision moments in business model evolution. In this section, we try to identify which dynamic phases for business models can be distinguished and which (high-level) external factors may be of influence on business model changes. Hereby, we focus on factors which may have a disruptive effect on the evolution of business models and may lead to key decisions with respect to business model changes. Based on the identification of phases in section 4.2 and external influencing factors in section 4.3, a conceptual framework will be presented in section 5. Before looking at phasing models and external factors, we will shortly pay attention to classifications of innovation in relation to business model development.

4.1 Innovation classificationThe type of innovation affects the design of the accompanying business model. Although innovation is possible in several domains like organizational and business processes, most innovation classification models focus on the impact that technological changes have on existing or new product-market positions and the resources and capabilities on which these positions rest. The classification models to be discussed should help understanding the impact of technological change on business models since resources and capabilities as well as product-market positions are core components of (respectively the organizational and service domain of) business models.

A popular classification dichotomy is the radical versus incremental change dichotomy. By making use of this dichotomy, it can be argued that the type of firm that is likely to exploit a technological change is a function of the extent to which change impacts the product-market position and the resources and capabilities of a firm [1]. From a product-market position view, a change is radical in economic sense when the change results in products or services that render existing products non-competitive. VoIP services based on P2P technology as offered by new entrants like Skype, are examples of radical innovations for incumbent telecom operators. Such VoIP services may have a huge impact on business models and value networks of voice communication services of incumbent telecom operators. When technological change only results in enhancing existing products or allows them to remain competitive, we speak from incremental innovation in economic sense. An example of such innovation is the addition of caller ID functionality to current voice communication services. From a technological capabilities view, technological change can be seen as competence-enhancing or incremental from an organizational perspective if the capabilities (e.g. skills, knowledge, assets, and resources) required to exploit new technology are built on existing firm capabilities. If the capabilities to develop new technology are radically different from existing ones within an organization, the change is said to be radical in organizational sense, or competence destroying. In such a context, existing cultures, resources, and capabilities of incumbents may not only be useless but may even have destructive effects (think of operators dawdling over implementing completely IP based services and architectures). New entrants

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do not suffer from these problems, and therefore are more likely to develop products and services based on new technology (i.e. Skype).

The disruptive versus sustaining change model of Christensen [7] focuses on disruptive innovation and can be related to the radical versus incremental change dichotomy. Whereas sustaining innovation simply makes a product better, disruptive technological change creates new markets by introducing a new kind of product or service, which costs less than existing products or services based on old technology. Initially, these products or services perform worse than existing products when judged by the performance metrics that existing mainstream customers value. Later, the performance is getting better and also addresses the needs of these mainstream customers. When a disruptive technology emerges, incumbent players are generally unable to respond without hampering their current businesses and making important changes in their business models in order to be able to survive. However, finding a good business model for a disruptive innovation is usually not obvious (patenting disruptive technology is mostly difficult). Therefore, in early phases (R&D) organizations mostly focus on perfecting the technology, whereas in later phases the focus is on revenue generation [18].

A radical or disruptive as well as incremental or sustainable technological innovation may lead to important changes in the structure of value networks and in the business models of the actors of these value networks. It is important to mention that the same innovation may be classified differently for different actors in a value network. For example, VoIP telephony services may be seen as disruptive for telecom operators, whereas they may be only incremental for mobile phone manufacturers. The emergence of faster processors and increasing storage capability radically changed the business model of Encyclopaedia Britannica Inc., whereas these improvements were not disruptive for computer manufacturers. Therefore, classifying an innovation is not a straightforward process. An incumbent player like Xerox for example took years for developing a good small plain paper copier while it was the inventor of the core technology of xerography. Building a paper copier appeared to be an incremental innovation but in reality the company had to innovate on an architectural level by focusing on components and linkages between them [12]. Based on these observations, terms like architectural and modular innovation emerged. This means that, although the dichotomies mentioned above classify innovation into just two categories (radical/disruptive versus incremental/sustaining), the spectrum of possibilities is spread over a continuum in practice [18] and is actor dependent as well.

In spite of the limitations and difficulties stated above, determining the type of innovation may be a helpful starting point for business model development because it can give important clues for developing suitable business models and value networks in order to be able to capitalize on an innovation. For instance, radical or disruptive technologies are likely to be offered by new entrants, mostly starting with a below average, but improving quality. Furthermore, incumbent players may have difficulties with capitalizing on architectural innovations as well as on radical or disruptive innovations but can profit relatively easily from incremental innovations.

4.2 Business model development: three main phasesIn the end, the starting point for every mobile service is ‘just’ a convincing business idea. The development process from business idea to established business can be divided in different phases [16]. Phasing models help to understand the evolution of the competitive landscape following an innovation or change, as well as the impact of an innovation or change on firm

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strategies and business models [1]. These phases are conceptualized in several disciplines. We have shortly examined phasing from four perspectives: technical service development, entrepreneurial and business planning, innovation adoption and diffusion, and marketing respectively. When we compare the phases as distinguished in these perspectives, one can broadly speak from three main phases: the technology/R&D phase, the implementation/roll-out phase, and the market phase consisting of the sub phases market offering, maturity, and decline (see Figure 2). These three main phases will be used for our dynamic framework.

Figure 2 An overview of phases from several disciplines

In the technology/R&D phase one typically focuses on technology, investments, and the development of service concepts. The shift from the technology/R&D to the implementation/roll-out phase is characterized by testing of service concepts, field experiments, first introduction and small scale roll-out of services. The service, its business model, and its supporting technology are mostly not yet totally developed and still open to changes and reconfiguration. Besides, there may be a possible shift in the service definition or technology architecture, which may have implications for involved partners. The shift from the implementation/roll-out phase to the market phase is characterized by a shift to commercial exploitation, after market experiments proved to be successful. The adoption rate should have passed critical mass after which companies start to shift their focus from capturing markets to the retention of market share and the maximization of customer satisfaction. In the technology phase and implementation/roll-out phase, research institutes, entrepreneurs, and venture capitalists may have played an important role. In the market offering phase big companies like telecom operators may become more important.

Figure 2 shows that the technological service development and business planning oriented phasing concepts emphasize the technology/R&D and implementation/roll-out phase, whereas the marketing and innovation adoption and diffusion oriented models, not surprisingly, are more focussed on the market phase.

According to Räisänen et al. [26] the technical service development lifecycle includes functionalities needed to provide a service from development to retirement. They distinguish the following activities as part of the service life cycle: service creation, service provisioning, and service lifecycle management in general during (during the complete lifecycle). The service provisioning level can be divided in service deployment, service usage, service retirement, and service operational management. On the lowest abstraction level, Räisänen, et al. [26] distinguish the following activities on the service usage level: service discovery, service selection, service negotiation, service composition, service adaption, service execution, and service termination. In each of these phases, there are important factors to overcome. In the service creation phase, technical factors are of greatest importance, whereas in the service provisioning phase one should pay extra attention to environmental factors such as legislation and market adoption. It is important to stress that in practice, the process is not sequential but iterative. It can be seen as a loop in which deployed services may be optimised based on feedback from an operational network as well as based on other input.

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Also from entrepreneurial and business planning perspective, the development process from business idea to established business can be divided in different phases. A popular model is that from Mason and Rohner [21], who distinguish four venturing phases:

Phase I - venture vision (validating the concept): the objectives of this phase are putting a plan together that outlines the product or service and its uniqueness, the market and why it’s attractive, the team and why they are qualified, and a high-level business model and the amount of money needed.

Phase II - alpha offering (building while planning): in this phase, the objectives are to build the alpha version of the product/service and its platform, see how it works, factor in changes and refinements to the basic specifications, and understand and resolve implications for the venture’s positioning, its business model, value propositions, as well as the effects on functional strategies and plans of the rest of the venture’s departments.

Phase III - beta offering (testing the concept): in this phase, the objectives are to test and refine the product or service and (by implication) the rest of the venture’s program, gain early market acceptance and customer testimonials from a beta product, and to use beta stage results to secure funding to do a full market launch. Testing the business model thoroughly is an important key skill in this phase.

Phase IV - market offering (calibrating and expanding): the objectives of this phase are to find customers, become profitable, and get the next version of the offering to market.

The model of Mason and Rohner [21] is mainly aimed at how an organization can develop and offer a new service. The Internet technology life cycle model as described by Afuah and Tucci [1] has a broader view by phasing the process in which companies in an emerging industry in general (like the Internet industry) are developing their services and business models. They distinguish the following three phases:

The emerging or fluid phase: in this phase, (a lot of) new entrants as well as incumbent players choose their profit sites and value network positions. There is competition between new and old technologies and different designs using new technology. Product quality is low, costs and prices are high, market penetration is low with mostly lead users and high-income users as customers. Since product/service and market requirements are still ambiguous, there are few failures in this phase.

The growth or transitional phase: in this phase, a standard or dominant design defines a critical point in the life cycle of the innovation. The customer base moves to mass market. Competition and disappearing requirements ambiguity forces many firms to exit or make important changes in their business models. Firms with the best adapted business models will survive.

The mature or stable phase: in this phase, companies focus on keeping and improving their competitive advantages. In markets where imitation is easy (e.g. most (mobile) Internet services), companies continuously make (incremental) innovations in their business models.

Rogers [27] discusses the adoption and diffusion of an innovation in a social system and defines it as a process with three phases: adoption, diffusion, and maturity. In the first phase of the process only a small portion of the members of a social system (the innovators) will adopt the innovation (so the rate of adoption is still low), but once the early adopters have joined in the innovation adoption curve rises steeply (the diffusion process is gaining momentum) – and by the time the late majority has also adopted the innovation only the

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laggards are left, who will take considerable time before embracing the innovation. Then, after the adoption and diffusion of the innovation, the maturity phase has been reached.

The most popular phasing concept from marketing point of view is the product life cycle concept, developed by Theodor Levitt in 1965 [15][23]. Based on the assumptions that products have a limited life time, product sales pass through distinct stages (each posing different challenges, opportunities, and problems to the seller), profits rise and fall at different stages of the product life cycle, and that products require different marketing, financial, manufacturing, purchasing, and human resource strategies in each stage of their life cycle, he distinguished four stages: introduction, growth, maturity, and decline. The life cycle stages as described by the more strategically oriented Johnson and Scholes [14] are quite similar to that of Levitt. They distinguish the stages development, growth, shakeout, maturity, and decline. The shake out stage can be seen as a ‘slowing growth phase’ between growth and maturity in which users and buyers are growingly selective with respect to buying services and in which the weakest competitors disappear from the market.

Important critics are that in reality phases aren’t fixed. Instead, there is variability in shape and duration [15]. Besides, life cycles need not to be linear and sequential in practice. Having a non sequential, iterative view instead of a linear view of life cycles may proof to be valuable: by versioning or repositioning products or services, the actual life time of these products or services can be extended [23]. Making these types of changes may also bring along changes in the underlying business models.

4.3 External factors influencing business model/value network dynamicsBusinesses don’t operate in a vacuum: a firm’s profitability rests as much on its business model as on its environment [1]. According to Hill and Jones [13], two types of environments can impact the performance of firms: the industry or competitive environment and the macro environment. The competitive environment forms part of the macro environment. The competitive environment itself can be divided in respectively the market environment and the organization(s) of analysis.

According to Allen [2], one of the biggest mistakes aspiring entrepreneurs make, is not taking time to learn about and understand their industries or competitive environments, in order to know where the opportunities are and how distribution channels work. Many entrepreneurs as well as many incumbents also fail to monitor and act on economic macro trends that may signal opportunities or threats. Both new entrants and incumbent players should analyze both environments continuously because they may give them clues for designing, changing, and refining their business models. This is especially true in dynamic industries like telecom and IT where ignoring crucial environmental developments may simply lead to liquidation.

On the macro environmental level, frameworks like PESTEL are useful for analyzing political, economic, social, technological, environmental (‘green issues’), and legal factors that are affecting organizations. A macro environment analysis may lead to the identification of structural drivers of and eventually also hurdles to change. Especially, the combined effect of these forces may be important and could lead to phenomena like industry convergence and globalization. Analyzing macro environmental factors is especially valuable when used to understand the differential impact of these external influences, drivers, and hurdles on a particular industry, market, or organization [14]. Main question then is: ‘what is in it for me or for my industry?’ Based on an environmental analysis focused on differential impact,

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different scenarios (plausible views of the future) could be developed. Then, based on these scenarios one could design alternative business models.

Analyzing the macro environment is unquestionably valuable. However, in the context of business model analysis, not all elements may be as relevant. Especially the impact of technological developments and legal or regulatory issues have a direct influence on business models of mobile services. Technological developments are important because mobile services are mostly based on technological innovation. Governmental bodies, such as policy makers and telecommunications regulators, also play an important regulatory role.

Besides technological developments and regulatory issues, market dynamics are important in business modeling context. In the end, the market environment and its dynamics form the basis for existence of a product or service. The priorities of customers – the issues that are most important to them, including and going beyond the product or service offered – should always be reflected in the underlying business model and value network of a product or service. These customer priorities have a natural tendency to change and therefore value networks as well as business models should be dynamic by definition and can’t stay fixed. When the mechanism that matches the service business model to the structure of customer priorities breaks down, value migration begins to occur. Then, value migrates from outmoded business models and value networks to new or adapted ones (possibly from new businesses in the same or even other industries) that are better able to satisfy customers' most important priorities at that moment in time [28].

For our business model framework we select market, technological, and regulatory influences as main external factors. These partially resemble the factors to overcome when commercialising a disruptive technology as described by MacInnes in his four-stage model [18]. According to MacInnes, when a new technology is developed, first technological issues should be solved by identifying weaknesses of the technology and provide potential solutions. In the second stage, environmental factors like potential legal limitations and possibly also societal and general economic limitations should be overcome. In the next stage building relations with other companies and investors should be main priority. Finally, the business model should be kept sustainable in the presence of competition, e.g. by offering derivate products. MacInnes shows that in the service life of disruptive technologies in general different external factors are important in different phases. The same may be true for 2.5G and 3G+ services specifically. This consideration will be taken into account when describing our dynamic business model framework.

5 Dynamic business model frameworkThe results from the literature review of business models, value networks, phasing, and dynamics come together in our dynamic business model framework as depicted in Figure 3. Although the innovation classification as described in section 4.1 is not part of the framework, defining the type of technological innovation on which the product or service to be capitalized is based may give useful clues with respect to the needed business model and value network actors and may therefore be seen as starting point for business model (re)design.

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Figure 3 A dynamic business model framework

The big blocks in the framework represent business models (with the four distinguished business model elements: service, technology, organization, and finance). The smaller blocks surrounding the big blocks represent external influences that may impact business model evolution. In this model three types of external influences have been distinguished: market opportunities or threats like increasing demand for location based mobile services, technological developments like the emergence of presence technology or WiMAX, and regulatory influences like the influences of governmental bodies that regulate compliance with legislation and regulations. The time line in the model represents our idea that business models are developing over time and that several phases can be distinguished. It is important to emphasize the iterative character of business model innovation: a company may pass through each phase several times. To show the expected dynamic importance of the distinguished factors in and between each phase we use the symbols ++, +, and ± in our framework. The ++ stands for high expected importance, + for medium expected importance, and ± for low expected importance. Figure 3 shows that, especially in a technology driven industry like mobile services, technology in the technology/R&D phase is the most important environmental factor. In the next phases, the importance of technology decreases. Then, because of the focus on implementation and market offering, the market factor becomes increasingly important. Especially in the implementation/roll-out phase one should overcome potential legal limitations, which may hinder the market offering of the service. In the market phase, regulation still may have an impact, e.g. in the form of legal actions against market domination. It is important to mention that our importance classifications as shown in the framework currently are just hypotheses and have not been thoroughly tested yet (see also [4] and [18]).

6 Short case study: OP3To test the practical usefulness and degree of realism of the framework as described in the previous section, we did a short, illustrative case study. The case concerns OP3, an innovative start up pioneering with direct connection technology. With its Shotcode concept, a circular bar coding technology originally developed at the University of Cambridge, the company makes the mobile Internet accessible in just two clicks and thereby is radically changing the way to get access to mobile websites. Downloading a specific mobile wall paper from a

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Phases: Technology/R&D Implementation/Roll out Market

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mobile web site typically may need more than 100 clicks for entering the address in a mobile phone. In contrast, by scanning a Shotcode as depicted in Figure 4 with a small software application (17 KB) on your phone, mobile content is instantly accessible. A Shotcode can be placed on posters, T-shirts, packing material, business cards, etc. Instead of getting access to a mobile website using a walled garden portal with a top down approach, the usage of Shotcodes can make access to mobile services just as open for the end user as with the current ‘fixed Internet’.

Figure 4 A shotcode to http://www.kijl.net

Until now, OP3 went, in retrospection, roughly three times through the business model life cycle framework. According to Dennis Hettema (CEO) as well as Dennis Timmermans (CFO), the development of their business model was clearly not a linear but iterative process.

Cycle 1 – ScanChooseBuyIn 2003, Hettema started OP3 based on a technological driver (the emergence of camera phones) as well as a market driver (people started looking at their phones besides holding them to their ears). Exactly these two factors have been identified as important in the first business model phase. Inspired by futurist Howard Rheingold in the technology/R&D phase, Hettema started developing his ScanChooseBuy concept by which people should be able to scan the barcode of a product (e.g. a book) in a store via their mobile phone, check if the product is available for a lower price via the Internet, and eventually buy the product via the Internet. However, in the implementation/roll-out phase, when Hettema was developing the service further and tried to make partnerships with several companies, he encountered a severe technological problem: the quality of the camera phones was too bad for reading the standard EAN barcodes properly (technological component of business model). Only by using extra hardware in the form of an add-on lens on the camera phone, one could improve the EAN barcode read accuracy. This was a suboptimal solution. The business model had to be changed and Dennis went back to the first business model phase.

Cycle 2 – Value added resellerMarket research revealed that there were several alternative direct connection technologies available (technological driver), one of them already optimized for scanning barcodes with mobile phones. Most of the companies that offered these technologies were very technology oriented. By making use of his marketing experience, Hettema transformed OP3 to a value added reseller of available direct connection technologies by helping organisations to turn mobile commerce into a profitable business. However, during the second business model phase (implementation/roll-out), it appeared that the position of OP3 in the value network was not strong enough (organizational component of business model): there was a severe risk of

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disintermediation of OP3. It seemed necessary to go back again to the first business model phase.

Cycle 3 – ShotcodeHettema was an expert in marketing but lacked financial knowledge. Therefore, Timmermans, a financial specialist, was allowed to buy himself into OP3. As CFO he proposed to simply buy all the Intellectual Property Rights including barcode technology from a technology oriented company specialised in barcode scanning with mobile camera phones. With the help of a private investor, they bought a 2D barcode platform called Spotcode from High Energy Magic Ltd., a company founded in 2003 to commercialise research from the University of Cambridge Computer Laboratory and Laboratory for Communications Engineering (technological component of business model). OP3 developed its Shotcode concept (as described at the beginning of this section) based on this platform. Then, they especially paid attention to marketing and the service and financial business model components behind Shotcode. Most technological competitors of OP3 used a top-down approach: by selectively targeting big companies they tried to start the diffusion process of their innovations. In order to stimulate the growth of the Shotcode user base as fast as possible and thereby severely strengthen its own position in the direct connection industry (organizational component of business model), OP3 decided it would be better to have a bottom-up approach where all non-commercial users may freely use their technology and software and may also create up to eight Shotcodes for themselves for free. Partially similar to the advertising models as offered by Overture and Google, commercial companies that would like to make use of Shotcode are asked to pay a small fee for each time a user enters their mobile website via a Shotcode (e.g. on a poster).

In June 2005 Shotcode was officially launched (market offering phase). Their concept received very positive reviews all over the world. With a fast growing user-base and by positioning itself as a hub between the outside world and the mobile Internet, the position of OP3 within the direct connection services value network currently looks strong. However, the mobile industry is a fast moving one. (Technological) changes like the diffusion and market adoption of a technology like RFID for example may be a reason to make profound changes in the business model of OP3.

Unlike OP3, a lot of companies – like record companies in the music industry – are struggling with business model innovation. Making necessary business model changes may be painful in the short term but may well be crucial in the long term. Then, the choice becomes easier... According to the CEO as well as the CFO of OP3, our business model framework may help companies to recognize and understand the relation between business models and regulatory, technical, and market changes, recognize the dynamic and iterative character of business models, and in that way help them to innovate with their business models.

7 Discussion and conclusionsBased on a concise literature review of business models, value networks, phasing models, and related dynamics, we developed and extended our earlier framework for mobile service business models (see [9]) with an evolutionary and dynamic approach of business models, which is mostly missing in current business model research. Therefore, the framework that comprised of service, technological, organizational, and financial components has been extended with business model phasing concepts and with an approach for high-level analysis of (external) market place dynamics like technological developments, market dynamics, and regulatory changes. The framework proved to be valuable when analyzing the development

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and innovation process of the OP3 business model. According to the interviewees from OP3, the framework could also be useful in practice.However, there are some important limitations. We tested the framework with a limited case study only, consisting of desk research and interviews with the CEO and CFO of OP3. Our model still has to be further validated. Besides, the distinguished external factors influencing business model design and phasing descriptions are really high-level and should be elaborated into lower level elements in order to further improve the practical usefulness of the framework and to be able to more thoroughly test and validate the framework, e.g. by longitudinal case study research. Also the link between the external factors and the business model internal value network perspective should be elaborated upon in order to be able to describe and visualize how value is created in consecutive business model phases. Ultimately, the framework should support developing guidelines for how a group of actors in a value network can govern their business models. Insight in business model dynamics may lead to avoiding unnecessary iterative development steps and path dependency. More research is planned in order to improve, extend, and test the value of our framework in practice.Although our research is limited to one single, illustrative case, we conclude that having a dynamic view on business models seems to be valuable, both from a practical and a scientific point of view. Integrating knowledge on business models, innovation management, and related domains may lead to more robust models for the analysis of factors that explain the viability and feasibility of business models and business model design.

AcknowledgementsThe research project described here has been conducted within the government funded Freeband project FRUX (http://www.freeband.nl/project.cfm?language=en&id=528). We would like to thank the people of OP3 for their cooperation and the members of the FRUX project for their valuable suggestions.

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