Ontology for e-Business Models OES-SEO’2001 Rome Yves Pigneur HEC Lausanne [email protected] (+41 21) 692.3416

Ontology for e-Business ModelsOntology for e-Business Models

OES-SEO’2001Rome

Yves PigneurHEC Lausanne

[email protected](+41 21) 692.3416

© 2001 Pigneur, HEC Lausanne e-business 2

Université de Lausanne

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Agenda

• Strategypages

– Value creation & differenciation

• Business model components > Model 5

– Product innovation7

• Value proposition, target and aptitudes

– Customer relationship 11• Feel, serve and protect customer

– Infrastructure & logistics 21• Logistics, process and alliances

– Finance & revenue28

• Measure > Measure 31

• Simulation– scenarios for uncertainty > Scenario 34



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General context

technologytechnology

Electronic commerceElectronic commerce

StrategyStrategy

Business modelsBusiness models

IndustryIndustry

IT strategyIT strategy

allows

Levier to change

Allows

impact

impact

IntermediaryIntermediary

CommunityCommunity

standard

infrastructure

integration

Brand

Promotion

Customer service

Brand

Promotion

Customer service

Costs

Diffusion time

Learning

Costs

Diffusion time

Learning

New products

New channels

New businesses

New products

New channels

New businesses

... improve

reduce

create

CustomerRelationship


ProductInnovation

ProductInnovation

logisticsinfrastructures

logisticsinfrastructures

FinanceRevenue

FinanceRevenue

[Bloch, 1999]



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Models and ontologies

• The Enterprise Ontology > html– Collection of business terms and definitions

(activities, organization, strategy, marketing, time …)

• Toronto Virtual Enterprise Ontology (TOVE)

• Ontology Interchange Language (OIL)– Primitives for modelling (frame & logic) and automatic reasoning (consistency)

Still to conceive for (e-) business models

XML

is co

min

g



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Innovationproduit

Gestion desrelations-clients

Gestion desinfrastructures

Aspectsfinanciers

Business model

Financialaspects

Financialaspects

HOW MUCH?What is the revenue model? the profit model? designed to last?

WHO?How to manage relationships with customers, satisfy them and generate revenues to be on the winning side?



WHAT?What is the scope of products and services, its value (its benefits) for the customer, the capabilties to deliver them in an innovating way?

Productinnovation

Productinnovation

HOW?How to organize the infrastructure, its resources, the knowledge and the structure of resulting costs, manage the value chain and processes, build alliances to achieve performance?

Infrastructurelogistics

Infrastructurelogistics



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Elements of a business model

CUSTOMER

Personalization

Distribution

Trust

PRODUCT

Target

Value proposition

Capabilities

INFRASTRUCTURE

Resources

Activities/processes

Alliances/networks

value for resources for

Revenue Value added + Costs Revenue Value added + Costs

Profit

On-line sales

Electronic markets

Info-mediation

Value chain

Value shop

Value network

Feel

Serve

Protect

CRM

channels

dis-intermediation

Price



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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.

VALUE PROPOSITION CAPABILITESTARGET

Targeted customers Competencies, aptitudes

ProductInnovation

ProductInnovation



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Value proposition - examples

• Facilitate research– and reduce transaction costs

• Speed up distribution– particularly digital goods (written, music, image, software)

• Improve the quality of service– by personalization, for example

• Improve facility and experience of buying– capitalizing on game 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 – simple models

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 – syndication

ROLE SOURCES SYNDICATORS DISTRIBUTORS CUSTOMER

Missions Create the content

Assemble the content

Manage the relationship between the sources and the distributors

Deliver the content to the consumers

Explore the content

Create revenues by subscription, payments or advertising

Internet Inktomi

Quote.com

iSyndicate

Linkshare (e-comm)

Screaming Media

Women.com

Yahoo!

E*Trade

[Werbach, 2000]product infrastructure customer

iSYNDICATE1’200 editors

270’000 sites web

• Delivery of an information that will be reused and integrated in an other one,

• for a payment generally in the form of asubscription

• with a complicated content management

> ICE

illustration



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• Interactive order by the customer– selection of the model, personalization, receiving of price, receiving of a

confirmation

• delivery of the model– without having it in stock, by assembling the order, on time with a minimum cost

In-house corecompetencies

Rigidprocesses

Products/services

channels Customers

Manufacture and sale products

Customers’needs

Integratedchannels

Products/services

Flexibleprocesses

Outsourcing/In-house

competencies

Feel and serve customers

Feel and serve customer[Kalakota, 2001]

Customerrelationship

Customerrelationship

MARKETING

SALES

SERVICE

Customer Base



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Cost(shirt)

% profit

Added value

CustomerRetailerDistributorProducer

$20.91$11.36$20.45

Price $52.72$31.81$20.45 $52.72

Producer RetailerDistributor Customer $52.72 0%

Producer CustomerRetailerDistributor $41.34 28%

Producer CustomerRetailerDistributor $20.45 62%

[Benjamin, 1995]

Dis-intermediation



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Distribution channels

Airline Travel AgencyReservation S.

80% by Internet!

Otopenia …

Illustrations

[Klein, 2001]



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Intermediaries

I. Direct market reinforced by the Internet

II. Threatened intermediary

III. Cyber-mediary IV. Intermediary reinforce by the Internet

More expensive with intermediary Cheaper with intermediary

Pre-internet

Pos

t-in

tern

et

Expedia …

Illustrations

More expensive with intermediary

Cheaper withintermediary

[Sakar, 1995]

ultra-intermediation

extra-intermediation

dis-intermediation

re-intermediation



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Personalization

2

3

4a

5

4b

Establish the configuration Establish the configuration

Planing of production

Listen to the customerListen to the customer

Distribution

CRM

Production (internal)

ERP Outsourcing (external) SCM

One-to-one

Mass-customization



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• Suggest a personalized content• maintain a privileged relation with the customer• preserve a track of each visit and a customer profile• manage an individualized interaction

– promotion, action, catalogue, historic, ...

– from business rules (if … then)

– and from the client's profile– without interfering (too much) with his private life

Recommending system – rule basedConversion

prospect client



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Recommending system - Collaborative filtering

• anticipate customers needs– recommend products

• from his preferences– as if we knew him for a long time

• and from preferences of other clients with similar tastes– word of mouth & correlation (if you liked this, then you should also like this …)

– learn by experience

– agents (intelligent)• big mass of information rating

book 1 book 2 book 3 book 4Isabelle 1 1 5 ?Thomas 5 2 1Mathieu 5 2Catherine 2 2 4 5Benoît 3 3 3Fabian 1 1 3 4

Catherine and Fabian seem to have a similar judgement to Isabelle's for the books 1, 2 (& 3);their rating (explicit) is used for Isabelle's (implicit) for the book 4: between 4 and 5



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Trust

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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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-TribeOne-to-TribeOne-to-OneOne-to-One



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• Receives, merges and manages the buyers information• protects the buyer • supplies information to vendors• puts the vendors under pressure• obtains advantages for the buyer on the behalf of the vendors

– for the information given to the vendors

• prefigured by Portals, buying clubs, associations of consumers …• requires skills and rare technologies

• Who can become info-mediary?– Fiduciaries– Merchants– buying clubs & consumer associations– databases– media, portals, …

Infomediary

brand

trafficemotion

[Hagel, 2000]



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Infrastructure and logisticsInfrastructuremanagement

Infrastructuremanagement

Computerized system

Buyer

seller

info

rmat

ion

Identifyproduct

Promoteproduct

influ

ence

Negotiate

Negotiate

paym

ent

BUY

SELL

good

s

Consume

Serve

info

rmat

ion

Query

Answer

Findsource

Findcustomer

info

rmat

ion

catalog payment logistics After-saleorder

logistics

standards



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Changing the warehousing approach

centralized distributed

in h

ouse

outs

ourc

ed

Structure

Ope

ratio

n DedicatedFulfillment

Center

DedicatedFulfillment

Center

DistributedDeliveryCenters

DistributedDeliveryCenters

Third-PartyFulfillment

Center

Third-PartyFulfillment

Center

PartnerFulfillmentOpération

PartnerFulfillmentOpération

Exemples

VolumesInvestmentFlexibility



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Orderprocessing

Orderconfirmation

Planing ofrealization

destockingloading

Planingdelivery

Customerservice

Prevision

Planing ofstock

Planing ofcapacity

MRPchoice supplier

Availability stockScheduling

Stock allocationorder of priorities

Schedulingmanufacturing

Schedulingdistribution

Process

Order planning

Process

Replenishment

Process

Production & assemblage

Process

Distribution

• profitable?• available in the inventory?• can be manufactured?

• integration with shipping companies• tracking by the customers• return of goods

• flexibilityy•integration

• BPR (business process reengineering)•INTEGRATION WITH ERP & SCM

[Kalakota, 2001]

Value chain, coordination & integration



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ECRECRECRECREDIEDIEDIEDI

Efficient customer Response

from to

Electronic Data Interchange

OrderOrder

BUYBUY

ReceptionReception

PaymentPayment

Company A

SupplySupply

SALESALE

DeliveryDelivery

InvoicingInvoicing

Company B

Bank ABank A Bank ABank AClearingClearing

selection, comparaison, ...

order or statistics

Delivery

invoice

paiement confirmation

Before sale

sale

production & distribution

After-sale



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Alliances et partnerships

Authormarketing

Authormarketing

Distributorinventory

Distributorinventory

Amazon.comsales

Information systemscoordination

contents

Amazon.comsales

Information systemscoordination

contents

Shippingtransporttracking

Shippingtransporttracking

Affiliatesales

Affiliatesales

Customerbuy

content

Customerbuy

content

Bankpayment

Bankpayment

deliver deliver

order

sale order

sales

critics

Credit cardclearance

returns



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e-SCM, e-procurement and e-market

Electronicmarket

suppliersbuyers

supply chain

Power of buyers

Reduced transaction costs Improved information access group buying …

Reduced selling costs bigger market access Dis-intermediation …

Power of suppliers

Market Vs. relation

Customers’needs

Integratedchannels

Products/services

Flexibleprocesses

Outsources/In-house

competencies

procurement



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HIERARCHY

MAKEMAKE

Supply chain

MARKET

BUYBUY

Production cost

Coordination costlow

high

low

NETWORKNETWORK

high

[Malone, 1993]

Co-production

partnership

Externalization

Virtualization

Holding

Strategic network



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Value creation

«The creation of an economic value stays the measure of success»

• 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

Aspectsfinanciers

Aspectsfinanciers



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Income models

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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Customermanagement

Customermanagement

Productinnovation

Productinnovation

Logisticsmanagement

Logisticsmanagement

FinancialAspects

FinancialAspects

Balanced scorecard

CUSTOMER RELATION

Goals Measures

How do the customers perceive us?

INFRASTRUCTURE

Goals Measures

In which process do we have to prove excellence?

PRODUCT INNOVATION

Goals Measures

How to improve our services and our quality?

FINANCE

Goals Measures

How do shareholder perceive us?

& initiatives

& initiatives

& initiatives

& initiatives

Scope

Scale

talent

Value

MEASURE



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Intangible Assets Monitor, Balanced Scorecard and Intellectual Capital

Value

Tangibles assets Intangible assets

Growth/Renewing

Efficiency

Stability

Clients Processes Training/Learning

Supplierpartner

SystemsPatentsknowledge

AptitudesExperienceformation

Growth/Renewing

Efficiency

Stability

Growth/Renewing

Efficiency

Stability

Individualprofit generator

Knowledge perspective

Customer capital Organizational capital Human capital

Structural capital

Logisticsmanagement

Logisticsmanagement

Customermanagement

Customermanagement

Productinnovation

Productinnovation

External structure Internal structure Individual competencies

IAM[Sveiby, 2001]

BSC[Nolan, 1995]

IC[Edvinsson, 1997]



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E-Performance[Agrawal, 2000]

ATTRACTION

• Visitor base• Visitor acquisition cost• Visitor advertising revenue

CONVERSION

• customer base• customer acquisition cost• customer conversion rate• nb transactions / customer• revenue / transaction• revenue / customer• customer gross income• customer maintenance cost• customer operating cost• customer churn rate• …

RETENTION

• repeat-customer base• r-customer acquisition cost• r-customer conversion rate• nb transactions / r-customer• revenue / transaction• revenue / r-customer• r-customer gross income• r-customer maintenance cost• r-customer operating cost• r-customer churn rate• …



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1

2

3

A B

C D?

Clear-enough future

forecast

Traditional toolkit

Alternate futures

Discrete options

Game theoryDecision analysis

True ambiguity

No basis for forecast

analogiesPattern recognition

Range of futures

No natural option

Scenarioplanningsimulation

Levels of uncertainty:

[Courtney, 1997]

Scenario planning



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Customer-relationship

Customer-relationship

Product innovation

Product innovation

Infrastructureslogistics

Infrastructureslogistics

Financerevenue

Financerevenue

System dynamicsSIMULAT

E



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Case-basedreasoning

• Business model• (Un-) bundled corporation• Breakthrough strategy

CUSTOMER

PRODUCT

LOGISTICS

FINANCE

Critiquingsystem

• Critical success factor• Balanced scorecard• Resource-based view

Simulationenvironment

• System dynamics• Dynamic resource system• Scenario Planning

DEFINECLASSDESIGN

ASSESSMEASURECRITIQUE

MODELFORECASTSIMULATE

BUSINESSONTOLOGY

OBSERVEDCASES

ENGINEERINGTOOL

Framework for Tool forE-BUSINESS MODELHANDBOOK

Projet

[Pigneur, 2001]

e-business model handbook

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Ontology for e-Business Models OES-SEO’2001 Rome Yves Pigneur HEC Lausanne [email protected] (+41 21) 692.3416