7. Business Models

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Flickr:dystopos

How are you gonna create value?

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Innovation happens also in business models

!

!

(not only technology)

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Auction business model!Bricks and clicks business model!Collective business models!Component business model!Cutting out the middleman model!Direct sales model!Distribution business models, various!Fee in, free out!Franchise!Freemium business model!Industrialization of services business model!Low-cost carrier business model!Loyalty business models!Monopolistic business model!Multi-level marketing business model!Network effects business model!Online auction business model!Online content business model!Premium business model!Professional open-source model!Pyramid scheme business model!Razor and blades business model (bait and hook)!Servitization of products business model!Subscription business model

Lots of business models possible

http://en.wikipedia.org/wiki/Business_model

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Flickr:jamesjustin / dexxus

One of the key decisions !

B2C vs B2B

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New MarketFinding a working business model at all !

Existing Market Finding a better business model

New Markets vs Existing Markets

http://en.wikipedia.org/wiki/Blue_Ocean_StrategyFlickr:Aube insanité

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Good Business Models are Scalable

Create once - sell often !

Scalable: licenses, subscriptions, services !

Not so scalable: project business, consulting

Flickr:brandondoran

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“Free” as a business modelChris Anderson, Wired

http://www.wired.com/techbiz/it/magazine/16-03/ff_free

Free: the future of a radical price. Chris Anderson, 2009 http://www.amazon.com/Free-Future-Radical-Chris-Anderson/dp/1401322905

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Twitter has many appealing opportunities for generating revenue but we are holding off on implementation for now because we don’t want to distract ourselves from the more important work at hand which is to create a compelling service and great user experience for millions of people around the world. While our business model is in a research phase, we spend more money than we make. !

From the twitter website (“About twitter” (2009))

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http://www.youtube.com/watch?v=0CDXJ6bMkMY

David Heinemeier Hansson The secret of making money online

“Free” as a business model - maybe not?

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Free often doesn’t mean free for everybody

Two-sided markets One side finances the other. Often with advertising.Examples: Any newspaper, Google, Acrobat Reader, Games. !

Platforms are often two-sided markets Examples: Nintendo, PC, iPhone, Acrobat. !

Freemium Basic Service Free, Pro costs (Flickr, Dropbox, Evernote and many other online services) The paying minority finances the free majority. (But digital services are cheap, so no big deal) Typical conversion is 2-3%. These users pay for everyone else.

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Digital Business Model TrendsAdvertising Must be targeted as just seen. Examples: Google adwords, many websites, iAd (!!)

Saas (Software as a Service) Run Software in cloud/browser. Subscriptions (!). Example: Salesforce, 37signals.

Freemium Basic service free, extended costs. “Drug dealers get it right” (ReWork)Examples: Flickr, Google apps, Evernote!

“Apps” Apple App store is huge success. (1 billion paid out). But note: not recurring for developer -> iAd

Virtual goods Mainly gaming. In game purchase of weapons, levels etc. Facebook virtual goods ($75 million* in 09(?)).

* http://www.businessinsider.com/breaking-down-facebooks-revenues-2009-7

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Scalability and DisruptionLow-end disruption

Low end disruption vs new market disruption

http://books.google.com/books/about/?id=SIexi_qgq2gC

What is special about Vision?In Terms of Business Model

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Special challenges for Vision StartupsB2B partly well established Industrial Vision, face recognition, ... !

B2C no models established yet Investors often point to the many image retrieval (by similarity) companies as failures although counter examples exist !

BUT: new opportunities come around these days New generation of technology (local features, CNN etc.)Mobile phones with integrated camera (in general increasing amount of visual data on Web)New distribution platforms for services (app stores!)

How we did it and Q & A

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ResourcesWikipedia on Business Models http://en.wikipedia.org/wiki/Business_model

Book: Blue Ocean Strategy http://en.wikipedia.org/wiki/Blue_Ocean_Strategy

Free (Wired Article) http://www.wired.com/techbiz/it/magazine/16-03/ff_free

Free (Book) http://www.amazon.com/Free-Future-Radical-Chris-Anderson/dp/1401322905

David Heinemeier HanssonThe secret of making money online http://www.youtube.com/watch?v=0CDXJ6bMkMY

Geoffrey Parker and Marshall Van Alstyne (2005). “Two-Sided Network Effects: A Theory of Information Product Design.” Management Science, Vol. 51, No. 1

Wired Article Googlenomics http://www.wired.com/culture/culturereviews/magazine/17-06/nep_googlenomics?currentPage=all