E business 3

e - Business and

e - Business Models – Part 3[«Business and business models in the Internet»]

Higher School of Economics , Moscow 2011

www.hse.ru

Ian MilesResearch Laboratory for the Economics of Innovation, HSE

(and Manchester Institute of Innovation Research)

June 2011

The Story so far…

• In the first two lectures we have looked at early efforts to create new e-businesses, and seen that ideas like “design paradigms” and “complementary assets” help us understand the limited success of many of these ventures.

• We also considered the dot com bubble, which had the beneficial side-effect of making people think seriously about Business Models.

• We explored differences between Business Models and Business Plans, and considered some elements of Business Models.

Agenda for Today

• Some different sorts of e-Business Model• Understanding the elements of Business

Models• Different Business Models related to these

elements.

Many lists of different types of e-Business Model – example from Rappa

Elements of a Business ModelThis view of the key elements is by Liting Liang 2011 (DPhil thesis) ,studying low-cost airlines as innovative business models.

But the emergence of the Web (and web2.0) and new media platforms means new approaches possible in all the hexagons.

“Building blocks” need to be aligned, though tension can be

creative

“Building blocks” need to be aligned, though tension can be

creative

Higher School of Economics, June 2011

Value Proposition

Economic Formula

Organisational Vision

Position in Value

Network

Target Market

Value Chain

Structure

Resources and

Capabilities

We have already explored Organisational Vision

Organisational VisionOrganisational Vision

Definition: Strategic intent - what the desired future of the firm will be, what opportunities are to be seized (the business model should flow from this).Example: To be the leading source of news/gossip/reviews...Innovation: To be the leading online portal for news/gossip/reviews...A new vision of what the rules of the game could be.

This helps define what business model is adopted. Now let us explore some basic elements.



1 – Value Proposition

Value PropositionValue Proposition

Definition:What services offered to the consumer, at what price and conditions.Example: Books; sold at shop; can examine there; can keep and share them. Innovation: e-books; copying/sharing restricted; available online anywhere; need a reader. New services, new delivery mechanisms, new prices, new service/price combinations (e.g. “no fills”). [scope for “blue ocean strategy”?]

Definition:What services offered to the consumer, at what price and conditions.Example: Books; sold at shop; can examine there; can keep and share them. Innovation: e-books; copying/sharing restricted; available online anywhere; need a reader. New services, new delivery mechanisms, new prices, new service/price combinations (e.g. “no fills”). [scope for “blue ocean strategy”?]

Higher School of Economics, June 2011Higher School of Economics, June 2011

Economic Formula


Position in Value

Network

Target Market

Value Chain

Structure

Resources and

Capabilities

Value Propositio

n

What Value Proposition?

• To whom? (target market)• What are you offering?• What experience will they get?• What is special about this?• How does it differ from competitors?

How will you establish this?

How will you communicate

this to customers?

Here focus on CUSTOMER VALUE PROPOSITION. Also Employee Value Proposition

BETTER QUALITY

BETTER PRICE

Quality has many dimensions.

Novelty may be valued.

However, too much learning may be deterrent.

Exceed expectations → DelightMajor

Business Model issue

Unlike other elements of Business Model, Value Proposition needs to

be clear to your clients• LANDING PAGE: where people are most likely to start.• How easy is it to explain? Do you need examples, specific

cases? Can you avoid detail until necessary?• Everything needs to convey message of competence and

professionalism• Standard messages about web page design: clarity, avoid

clutter, intrusive pop-ups, jargon, privacy concerns, etc.• Appearance; Content; Navigation; Gifts. • Visitor needs to know: why am I here? Why is staying with

this offering superior than looking for, or going back to, alternatives?

Price/Quality Choice

BETTER QUALITY

Differentiation strategy (Michael Porter)

BETTER PRICE (for customers)

Cost leadership strategy (Michael Porter)

“Rip off”: overcharging shouldn’t work in competitive, informed markets

Fantastic value: may require mastery of a

disruptive innovation

Premium services: may work well with demanding/ status-oriented / money rich time poor consumers

Budget services: often where disruptive innovation begins, but may also be aimed at low-income niches

What space for

intermediate value

offerings?

Whose choice: yours or consumers?

Note that the customers’ perceptions of price and quality may differ from yours! Their perceptions are the ones that count.

You may have a range of price/quality offerings – and you may have dynamic pricing of some sort.

In the first lecture, we noted three types of “Telematic Service” associated with the very

first e-businesses

INFORMATION

TRANSACTIONCOMMUNICATION

Online Databases

News, Weather, Timetables

“Home and office” banking

Shopping, ticketing

Electronic mail

Bulletin boards, chatlines

Earliest services were access to remote computers for data processing, but as prices and sizes declines, more interactive services developed.

The three types help to illustrate different Value Propositions

INFORMATION

TRANSACTIONCOMMUNICATION

e-Publications of all kinds:Text, graphic, audio, video

Real-time, transitory and long-term material

Static vs.Dynamic (mash-ups etc.)

Retail and wholesale services

1-2-1,1-2-many, many-2-manyEmail, VoIP

Many sorts of service have proliferated: here are some of the varieties

Processing of uploaded data, etc.: Software as a Service (SaaS)

Pay for content,

software, data processing

Brokering

virtual market places

Blogs, podcasts, P2P content delivery systems

Value Proposition: Information Service

Funding

Information resources, navigable in several ways

Trustworthy

Aesthetics

News and Entertainment

Internet Radio

• RINSE FM:this is the landing page• http://rinse.fm/• “new British street sounds”

from pirate radio to globalfollowing (but retains flavour)

• Much listener input• Good case study

http://rinse.fm/

Information Services

• Classically one-to-many.• What mix of what sorts of information?• For whom, monetised how?• Issues such as Intellectual Property, content

ethics and quality, storage policies• Use of consumers and partners in P2P and

other settings.

Communication Services: Value Proposition

• Classically one-to-one, few-to few.• Familiar physical parallels like post,

telecommunication parallels like telephony, telecomms+physical → fax

• Now well-established services in email, VoIP, so need to find ways of making USP particular features very clear in value proposition.

Value Proposition: Communication services

Many services seek to provide VoiP and video calling alternatives to Skype

Even emailEasy to understand the basic service – so how do you differentiate yourself? Very hard with such multifunction services as Gmail. How to present features like storage, spam filtering? Here the community and ethics are stressed, rather than the basic functionality.

Communication Services

• What sort(s) of communication are being offered?

• Who is talking to whom, how do they make contact, how are they connected (what types of information are exchanged)?

• How is the value proposition made distinctive? Is the USP functionality, or other dimensions?

Transactional Services: Value Proposition

• Some firms offer a wide range of services, some are specialised –

• Payment systems for transaction: e.g. PayPal.• Marketplace (including auctions)• Retailer/wholesaler of physical or virtual

goods and services• Related information services such as price

comparison


Special offers, news

Membership and

established customersKey

service is upfront.

Simple booking

and payment (Expedia

get commi-

sssions)

Note effort to

differ-entiate


Very basic presentation:

Deliberate strategy?

Key service is upfront.

Link to areas where classified ads are located “little interest in

maximizing profit” (? Conflicts with

eBay part-owners?) “

Funding from paid job and apartment

advertisements.

Content controversies!


• Easy in one respect: most models are virtual versions of familiar physical services (bricks and mortar)

• Scope for building on existing services (e.g. Amazon offers third-party sales)

• Delivery issues arise where physical products involved: scope for outsourcing

• Issues of trust high• Security and continuity of service

2 – Target Market

Value Chain Structure

Position in Value

Network

Target MarketTarget Market

Definition: Who services are being aimed at, for whom value is created.Example: Travel planning and ticket purchasing system .Innovation: Reach people on the move, with services targeted to mobile phones.New target market, often by expanding existing market and reaching people who were excluded, and/or by increasing amount of consumption in existing markets.

Definition: Who services are being aimed at, for whom value is created.Example: Travel planning and ticket purchasing system .Innovation: Reach people on the move, with services targeted to mobile phones.New target market, often by expanding existing market and reaching people who were excluded, and/or by increasing amount of consumption in existing markets.


Value Proposition

Economic Formula


Position in Value

Network

Value Chain

Structure

Resources and

Capabilities

Target Market

Target Market

• “The customer you have in mind”: a member of that market segment (profession, location, language, platform, etc.) you are trying to reach.

• Markets may be B2B, B2C, P2P… (not to mention G)• Mass, multiple niches, single niche

– Big firms aim at big markets; small firms can easily be outspent on budget if they try to enter directly

• What does the market want? General purpose, mass customised, very specialised (this is actually as much to do with Value Proposition) How well do you know them? How can you find out more?

• No.1 finding in innovation research: successful innovators have good understanding of, links with, user base.

• Different users: different benefits from the service.

As they say in business…

http://www.plantescompany.com/blog/business-model-innovation-best-practices/

Story about trying to appeal to too many demanding customers

Ning Case

• Launched 2005 by co-creator of Mosaic, co-founder of Netscape

• Social newtworking site, competing social sites like MySpace, Facebook, Bebo, etc.: easy-to-use services for creating and hosting social networks around particular interests – photos, videos, business reviews…

• April 2010 – abandoned effort to compete with free sites and aim at business service with three levels of paid service. More predictable revenues than advertising.

• Permits valuable business applications with their own visual design, choice of features and member such as analytic data, integration with other company services.

• Much narrower target market: switch outraged manyearlier users.

From roll-out to roll-up

Meanwhile…

Example

Market Questions

• Who? Descriptives– B2C or B2B differ: personal data versus sector/size data– Location, language, skills, spend

• Why? What major benefits?• Why you? What USP?

• How? To reach them? To communicate effectively?

Should you do market and competition research?

Market Research

• Talk to the users…• Some other methods mentioned at

http://www.training.internetbasedfamily.com/target.html

• Keyword Research – e.g. Google adwords https://adwords.google.com/

• Discussion groups – and blog searches• User magazines• Competitor and other websites

• If no competition: why not?Perhaps it is impossible to provide your service at a price that users consider it worth making

the switch for – case of women-only taxis

3- Resources and Capabilities

Value Chain Structure

Position in Value

Network

Resources and CapabilitiesResources and Capabilities

Definition: the buildings, tools, knowledge, skills, routines, relationships used to create value.Example; design services using paper-based graphics.Innovation: online CAD service (in future, 3-D printing)Better/new use of existing capabilities, application of new capabilities

Definition: the buildings, tools, knowledge, skills, routines, relationships used to create value.Example; design services using paper-based graphics.Innovation: online CAD service (in future, 3-D printing)Better/new use of existing capabilities, application of new capabilities


Value Proposition

Economic Formula


Position in Value

Network

Target Market

Value Chain

Structure

Resources and

Capabilities

Resources and Capabilities



• HUMAN RESOURCES: skill sets PLUS motivation. “Scripts” for routines, insight for events.• Skills include social and managerial skills, and in e-business typically have to manage

across different professions and knowledge bases. Requires “translation” capabilities, and ability to forge common visions. Training, incentives.

• You may have (or need to deal with) Intellectual Property resources. Content is subject to copyright regulations. In the USA it is possible to patent e-business processes, e.g. Amazon.com’s 1999 patent for "one click" purchasing technology (legal battle with Barnes and Noble; currently hot issue in Canada where it is trying to extend).

• Technology: hardware, software, infrastructure. What is underyour control? Can you upgrade if demand increases? Can you “degrade gracefully”?

• Trial and prototype before launching!

• Do not forget CAPACITY: managing flows. Idle resources = waste (can you apply them? Dispose of them?). Overstretched resources = risk (can you strengthen them? Reduce the risk?)

• Resources and Capabilities are, of course, applied into ACTIVITIES that comprise your business processes involved in executing your Business Model.



© New Yorker, 9 March 2009

The most important resource is having leaders with optimistic vision they can communicate, transforming challenges to opportunities

[The second major result of innovation studies: successful innovations have a “product champion”.]

• Next lecture: the final three Elements of Business Models

• Can you design an eBusiness Model?

Business Model Structure

20, Myasnitskaya str., Moscow, Russia, 101000Tel.: +7 (495) 621-2873, Fax: +7 (495) 625-0367

www.hse.ru


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