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A framework for defining e-business models. September 2002 Yves Pigneur HEC Lausanne yves.pigneur@unil.ch (+41 21) 692.3416. Agenda. INTRODUCTION PRODUCT INNOVATION Value proposition CUSTOMER RELATIONSHIP Target customer Distribution channel (and intermediation) Customer equity - PowerPoint PPT Presentation
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A framework for defining e-business modelsA framework for defining e-business models
September 2002
Yves PigneurHEC Lausanne
yves.pigneur@unil.ch(+41 21) 692.3416
© 2002, Pigneur Business model 2
Université de Lausanne
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Agenda
INTRODUCTION
PRODUCT INNOVATION
• Value proposition
CUSTOMER RELATIONSHIP
• Target customer
• Distribution channel (and intermediation)
• Customer equity
• Revenue & pricing
INFRASTRUCTURE OPERATION
• Capabilities & resources
• Activity configuration
• Partnership
• Cost model CONCLUSION
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IT Alignment
BUSINESS INFORMATION TECHNOLOGY
STRATEGIC FIT AUTOMATION LINKAGE
FUNCTIONAL INTEGRATION
INT
ER
NA
LE
XT
ER
NA
L
BUSINESS STRATEGY I/T STRATEGY
ORGANIZATIONAL INFRASTRUCTUREAND PROCESSES
IS INFRASTRUCTURE AND PROCESSES
BUSINESSSCOPE
DISTINCTIVE COMPETENCIES
BUSINESSGOVERNANCE
BUSINESSSCOPE
TECHNOLOGYSCOPE
I/TGOVERNANCE
PROCESSES
ARCHITECTURES
SKILLSSKILLS
ADMINISTRATIVE INFRASTRUCTURE
PROCESSES
[Venkatraman, 1983]
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What is a Business Model anyway?
• A buzzword with no precise definition ?– […] Executives, reporters and analysts who use the term don't have a clear
idea of what it means. They use it to describe everything from how a company earns revenue to how it structures its organization
A business model is– the value a company offers to one or several segments of customers, and
– the architecture of the firm and its network of partners
– for creating, marketing and delivering this value and relationship capital,
– in order to generate profitable and sustainable revenue streams.
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Why a business model approach to e-strategy?
Business ProcessesInformation systems
Business Model
StrategyPlanninglevel
Architectural level
Implementationlevel
Conceptual architectureof a business strategy
e-Business Technology layer
• Positioning• Objectives & goals• Communication of strategy
Avoid re-inventing strategy
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State of the Art - ontology
• The Enterprise Ontology– collection of terms and definitions relevant to business enterprises
– Activities and processes, organization, strategy, marketing, time
• On-to-knowledge (XML) Content-driven Knowledge-Management through Evolving Ontologies
• Electronic Business (EDI) using XML– «To provide an open XML-based infrastructure enabling the global use of
electronic business information in an interoperable, secure and consistent manner by all parties»
• Other EDI ontology: bizTalk, cXML, CBLScénario
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State of the Art – e-business models
• Categorization– According different axes (innovation, integration, control …)
– Timmers, Rappa, Tapscott …
• Modeling– Concepts and questions
– Hamel, Afuah, LinderWeill, Rayport, …
• Tools– Computer-aided design
– MIT eBusiness Process Handbook (Malone)
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State of the Art – business strategy
• (Un-)bundling the corporation– Product (What?), Customers (Who?), infrastructure (How?)
– Hagel, Markides …
• Competence tree– Knowledge, strategy, value creation
– Giget, …
• Value creation framework– value-creating activities result in
offerings provided to customers
– Ramirez, Wallin, Norman …
WHATWHAT
WHOWHO
HOWHOW
Market
Product
Activities
Capabilities
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e-Business Model Framework (eBMF)
Customerrelationship
Customerrelationship
Productinnovation
Productinnovation
FinancialAspects
FinancialAspects
Infrastructureoperation
Infrastructureoperation
WHO?Who are the customers?How to manage relationships with customers, satisfy them and generate revenues to be on the winning side?
HOW?
How to organize the resources and competencies? manage the value chain and processes? build alliances?to achieve performance?
WHAT?What is the scope of products and services, its value and benefits for the customer?
HOW MUCH?What is the revenue model? the profit model? The cost model, designed to last?
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Value proposition
Value Proposition
Offering
setOf isA
• Description• Reasoning (use, risk, effort)
• Life cycle (creation, purchase, use, renewal, transfer)
• Value level (me-too, innovation/imitation, innovation)
• Price level (attractive, market, high-end)
• Categorization (barter, sale, market, buy)
Target CustomersCapabilities
What we offer?
ProductInnovation
ProductInnovation
synonym: Benefice
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Value proposition
To characterize product innovation, the value proposition
• defines,
• the actual product or service, and
• the value or benefits perceived by customers of the products and services offered by the firm.
• In the case of e-business this offer naturally includes a strong information system component, principally the Internet.
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Value proposition – Offerings
• Facilitate research– and reduced transaction costs
• Speed up distribution– particularly for digital goods (written, music, image, software)
• Improve the quality of service– by personalization, for example
• Improve facility and experience of buying– capitalizing on ludic aspects
• Improve the transparency of information– by opening up the information system
• Develop a sense of community– and improve the diffusion of knowledge,
contacts and trust
• Bind complementary products
ticketless
Yield Management
Barcelone Loterie Romande
reservation
easyCar
Illustrations
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Value proposition – Customer Service Life Cycle (CSLC)
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Value proposition – Value and price levels
[Kambil, 1997]
Cos
t
Performance
Val
ue fr
ontie
r
Concorde
EasyJet
Exec jet
High-endQuality, comfort
…
Low cost(frequent flight, on-time schedule, service)
Underperformers
Major airlines
Me-tooInnovation/imitationInnovation
AttractiveMarketHigh-end
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Value proposition – categorization
Influence of sellerlow high
Influ
ence
of
buye
r
low
high
Electronicbarter
Electronicbarter
SwapBarterAlaxis
Onlinesale
Onlinesale
Products:Amazon LeShop Brun Passot
Services:AutoWebE*tradeeasyJet
aggregation:
EMB
Onlinebuy
Onlinebuy
Portals:AOL, Yahoo Zdnet
Group buying:Cendant MercataAccompany
Pressure of seller
Pressure of buyer
competition
cooperation
Electronicmarket
Electronicmarket
search:Acses
auction:eBay PriceLine Ricardo
plate-form:TPN Register, linkom goFish
POWER
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Value proposition
Browsing in price lists Online bookingTransportation(low flight fares)
explanation
The customer can navigate onthe Website and check-out
prices for flights on differentdates and at different times
The customer can book flightsdirectly on the easyJet.comWebsite by using his credit
card
The customer buys atransportation service from
easyJet.com that is similar tocompetitor offers but cheaperbecause there is no in-flight
service and no seat reservation
reasoningThis service essentially reduces
the risk of not choosing thecheapest convenient flight
This service reduces thecustomer’s effort of having to
go to a travel agency
nature of valueelement
Value creation: The customerindividually chooses the flight
that fits him best
Value appropriation: Thisservice concerns the buying
process
Value consuming: The mainproduct is transportation from
A to B
value measure me-too me-too me-too
price free free highly attractive
Illustration
Online sale
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Target customers
Target customer
Criterion
setOf isA
Value proposition
Community
Segment isA
Who are our customers?
Customerrelationship
Customerrelationship
• Description• Reasoning• Categorization
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Segment
• Categorizations of the population into social class or psychologically defined groups
• Area where a firm can specialize and gain competitive advantage– By having lower costs or customer-satisfying differentiation
– Clear distinction– Limited set of competitors– Distinctive supply– Different purchase criteria– Barriers to deter new entrants
Large organization
Home User
Market
Small Business
Medium Business SOHO
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Community
Group of people or entities– that share values or interests
– and use the le Net regularly &at the same place
transaction Business, trading, occasions, barter …
interest Idea sharing,communication …
fantasy Role games, fantasy world…
relation Assistance (disease), sharing of experiences …
[Hagel, 1997]
Put pressure on sellers
Meeting ofsellers/buyers
Target customers
BuyUnion(mass)
BuyUnion(mass)
Marketmix
(informed)
Marketmix
(informed)
BarterNew age
(unselfish, elitist)
BarterNew age
(unselfish, elitist)
Sale target
(spendthrift)
Sale target
(spendthrift)
One-to-tribe
marketing
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Distribution channel
Distribution channel
Link
setOf isA
Target CustomersValue proposition
Offering
isA
Internet
Network isA
Call center
How we reach our customers? Feel and serve them?
Actor by
• Description• Reasoning• Categorization
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• A channel can be defined as a set of links or a network via which a firm “goes to market” and delivers its value proposition.
– Owned channels - direct (i.e. Web, phone, fax…)
– Owned channels - indirect (i.e. brand shops)
– Partner channels (intermediation i.e. retail, shops, ...)
• More precisely it defines how a firm is “in touch” with its customers for a variety of tasks
– Customer Buying Cycle (CBC)
– Customer Service Life Cycle (CSLC) The purpose is to make the right quantities of the right products or
services available at the right place, at the right time
The purpose is to make the right quantities of the right products or
services available at the right place, at the right time
Distribution channel
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Corporate Resellers
Large organization
Value Added Resellers Traditionnal
Dealers
Home User
Organization focus
End users
Channels
Market
Small Business
Medium Business
AlternateRetail
Needs
SOHO
Network Software PC's Periph.
Preferences Buying behaviour
ProgramsSelection criteria
ProductsTraining
Procurement strategy
Distribution strategy
Distribution channel Illustration
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Distribution channel – intermediaries
Airline Travel AgencyReservation S.
80% by Internet!
Otopenia …
Illustration
[Klein, 2001]
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Distribution channel – mix of links
Promotion of authors and
books
Reading cornersCoffee shopsSales person
Cash registry(cash/credit
card)Return books
Banners to books etc.
Search functionCustomer review
CriticsExcerpt
Shopping cartcheckout
(Credit card)
Order statusReturn booksTransaction
history
Specialized affiliate Websites
Expert commentaries
Recommendation
Free online courses
Courses based on books etc.
Mass advertising
Illustration
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Customer Relationship
Relationship
mechanism
setOf isA
• …
Target CustomersValue proposition
Offering
isA
Retention
Acquisition isA
Add-on selling
How we get and keep our customers?
Trust
Personalization isA
Security
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Customer equity
• Customer Acquisition– How do we get customers?
– Growing market share
• Customer Retention– How do we keep customers?
– Nurturing customer loyalty
• Add-on selling– How do we get customers to buy more?
– Enhancing Average Revenue Per User (ARPU)
In some mobile firms,customer acquisition costshad reached almost a quarter of all operating expensessaid Mr Zehle, CEO of
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Make recommendation Make recommendation
PERSONALIZATION mechanisms
2
3
4a
5
4b
Establish configuration Establish configuration
Planing of production
Listen to the customerListen to the customer
Distribution
CRM
Production (internal)
ERP Outsourcing (external) SCM
One-to-one
Mass-customization
Collaborative
filtering
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TRUST & LOYALTY mechanisms
TRUST
SECURITY
PRIVACY
Contribute to the establishment of
BRAND
Notoriety …
Fear: financial losses
Fear: loss of intimacy
INFO- MEDIARY COMMUNITY
Certification
Verification et authorization
Escrow
Notary, payments
Expertise
Guarantee of quality
Rating
Reputation of actors
Insurance
Risk management
Contribute
QUALITY
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Revenues and pricing
Revenue
Pricing
setOf isA
Target CustomersValue proposition
Offering
for
What are our revenues? Our pricing?
• Description• Reasoning• Categorization
Link
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Revenue models – categorization
REVENUE
one time
recurrent
sale
registry
subscription
advertisement
use
Income of the subscription fees to become a memberPaid by the buyer and/or the vendor
transaction
commission Income, percentage of a transaction made by the settlement(affiliate program)
Income of online sales paid by the buyer
Income of the ad banners posted on the shopfrontPaid by the vendor
Phone• registry• subscription• Usage
• Time• Services
combination
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Trends towards dynamic and online pricing
• Based on – catalog– negotiation between the seller and the buyer– auction– request for proposal (RFP)
• « good bye to fixed pricing »?– Suppliers enjoy price differenciation in order to avoid comparison– Customers enjoy low price and gaming using comparison
Yield Management • Allows to calculate in real time (online if on the Internet)
• the best prices• for maximazing the profit generated by the sales• based on a forecasting model of sale behavior
(for micro-segments)
[Klein, 2000]
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Illustration
uploadimages
Print ofimages
Deliveryof items
Marketingof product
services
Printinginfrastructure
Packingstaff
ColorMailerWebsite
enablesvalue forActivities
Resources
Partners
required
perform
Infrastructure operationInfrastructure
operation
Infrastructureoperation
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Capabilities and resources
Capability
Resource
setOf isA
Value proposition
What are our key competencies?
Actor by
• Description• Reasoning• Categorization
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• Capability– Repeatable patterns of action in the use of assets
– Aptitude to exploit and coordinate resources
– to create, produce, and/or offer products and services to a market
• Resource– Assets that are available & useful
– in detecting and responding to
– market opportunities or threats
[Wallin, 2000]
OWN
DO
Capabilities and resources
IBM
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Online Gift Center
Online Gift Center
Integrated Partner Offers
Integrated Partner Offers
Broad Assortment
of Gifts
Broad Assortment
of Gifts
Customer Service
Customer Service
Wide Reach to CustomersWide Reach to Customers
Widespread Easy Access
Widespread Easy Access
Multiple Contact Points
Multiple Contact Points
Popular Web Site
Popular Web Site
High Quality of Flowers
High Quality of Flowers
TechnologyTechnologyStrong Brand
NameStrong Brand
Name
Strong Distribution
Network
Strong Distribution
Network
[Rayport, 2001]
Capabilities Illustration
= Capabilities
= Core Benefits
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Capabilities – categorization
[Wallin, 2000] & Synocus
external
internal
customersresources
Related to business processes
Related to management processes(decision)
Business modelingcapability• Absorptive capacity• Conceptualizing• timing
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Value configuration
Value configuration
Activity
setOf isA
Value propositionCapabilities
Resource
FitFlowSharing
Value shop
Value chain isA
Value network
How we operate and deliver?
Actor by
• Description• Reasoning• Categorization
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Laminer (1)
Presser (13)
Découper (14)
Souder (9)
Concevoir (16)
Rechercher composants
(17)
Assembler (8)
Stocker (15)
Livrer (10)
Gérer les stocks (11)
Livrer (12)
Presser (2)
Découper (3)
Alusun
Aerotech
Stocker (4)
Livrer (7)
Metalu
Tôles laminées
Tôles pressées
Toits
Capots moteurs
Landcar
ToitsCapots moteurs
Toits
Capots moteurs
SkyStar
Composants
Composants
Panneaux alu
Alliages reçus
Tableaux de bord
Rechercher alliages (5)
Suivre les contrats (6)
Propositions émises Contrats
Commandes
Informations alliages
Montants encaissés
Emettre des propositions
Conclure des contrats
E1
E2
Tôles pressées
Tôles découpées
Eléments soudés
Tôles laminées
Tableaux de bord
Plans
Panneaux alu
Eléments soudés
Eléments soudés
Tôles pressées
Informations
Informations
Tableaux de bord
Nouvel alliage
Commandes
Cartel
[Revaz, 1995]
Value configuration Illustration
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Value chain, shop & network[Stabell, 1998]
cate
goriz
atio
n
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Value chain, shop & network[Stabell, 1998]
Illustration
Value chain
Value shop
Value network
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Partnership
Partnership
Agreement
setOf isA
Value propositionCapability
Activity
on
Market
Chain isA
Network
How we collaborate?
Actor by
• Description• Reasoning• Categorization
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Pro
du
ctio
n c
ost
Coordination costlow
low
high
high
[Malone, 1993]
Partnership – categorization
CHAINCHAIN
manufacturersupplier retailerdistributor buyer
pro
du
ct
MARKETMARKET
Authormarketing
Authormarketing
Distributorinventory
Distributorinventory
sales
Information systemscoordination
contents
sales
Information systemscoordination
contents
Shippingtransporttracking
Shippingtransporttracking
Affiliatesales
Affiliatesales
Customerbuy
content
Customerbuy
content
Bankpayment
Bankpayment
deliver deliver
order
sale order
sales
critics
Credit cardclearance
returns
NETWORKNETWORK
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Costs
Cost
Account
setOf isA
What are our costs?
• Description• Reasoning• Categorization
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Costs
Revenues
Total net revenue
Cost of goods sold
Total Costs of goods sold
Gross margin
Total Costs of goods sold
Operating expenses
research and development
sales and marketing
general and administration
Total operating expenses
Operating income (loss)
Income (loss) before tax
Net income (loss)
PROFIT = (P – VC).Q – FC
P the unit price of a product
VC the variable cost of a unit
Q the number of products
sold
FC fixed costs
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e-Business Model Framework (eBMF)
Channel CustomerPropositionConfigurationCapability
Link CriterionOfferingActivityResource
Cost
Account
Revenue
Pricing
Partnership
Agreement
Relationship
Mechanism
Actor
isa
isa
flowfitshare
ProductInnovation
ProductInnovation
Infrastructureoperation
Infrastructureoperation
Customerrelationship
Customerrelationship
Financialaspects
Financialaspects
Profit
© 2002, Pigneur Business model 46
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Customerrelationship
Customerrelationship
Productinnovation
Productinnovation
FinancialAspects
FinancialAspects
Infrastructureoperation
Infrastructureoperation
Model & document (XML)DEFINE
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Balanced scorecard (BSC) & Intangible Assets Monitor
Customerperspective
Customerperspective
Innovationperspective
Innovationperspective
Financialperspective
Financialperspective
Internalperspective
Internalperspective
How do the customers perceive us?
In which process do we have to prove excellence?
How to improve our services and our quality?
How do shareholder perceive us?
CUSTOMER
Goals Measures
& initiatives
INNOVATION
Goals Measures
& initiatives
FINANCE
Goals Measures
& initiatives
PROCESSES
Goals Measures
& initiatives
MEASURE[Kaplan, 1992]
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System dynamicsSIMULATE
Customerrelationship
Customerrelationship
Productinnovation
Productinnovation
FinancialAspects
FinancialAspects
Infrastructureoperation
Infrastructureoperation
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Questions
http://inforge.unil.ch/yp/Talk/oois2002.htm
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