business models and ecosystems
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TRANSCRIPT
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Designing Business Models(& Business Ecosystems)
Michael WeissCarleton University
TIM Program
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Objective
• Upon completion of this session, you will know about:– Building blocks of a business model– Modeling a business ecosystem
• And you will be able to:– Create a model of your business and your ecosystem
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Agenda
1. Modeling your business2. Common business models3. Modeling your ecosystem4. Key lessons
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1. Modeling your business
• What is a business model?
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1. Modeling your business
• What is a business model?
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Business model frameworks
• Business model frameworks– Provide a shared vocabulary and structure for describing and
comparing business models– Aim to be intuitive, yet comprehensive enough to capture the
nuances of business operations and strategy
• Examples of business model frameworks – Four-box framework (Johnson, 2010)– Six-function framework (Chesbrough & Rosenbloom, 2002)– Four-factor framework (Muegge, 2012)– Business model canvas (Osterwalder & Pigneur, 2010)
Read the article on Business Model Discovery in the TIM Review, http://www.timreview.ca/article/545
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Comparison (1)
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Four-box framework:
Seizing the White Space
Six-function framework:
Open Innovation1) Customer value proposition
2) Profit formula
3) Key resources
4) Key processes
1) Value proposition
2) Market segment
3) Value chain
4) Cost structure/profit potential
5) Value network
6) Competitive strategy
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Comparison (2)
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Nine building blocks:
Business Model Canvas
Four-factor framework:
Business Model Discovery1) Customer segments
2) Value propositions
3) Channels
4) Customer relationships
5) Revenue streams
6) Key resources
7) Key activities
8) Key partnerships
9) Cost structure
1) Importance (pain point)
2) Stakeholder value propositions
3) Profit formula
4) Capabilities (these include resources and processes)
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Business model canvas
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Key partners Key activities Value propositionValue proposition
Customer relationships
Customer segments
Key partners
Key resources
Value propositionValue proposition
Channels
Customer segments
Cost structureCost structureCost structure Revenue streamsRevenue streamsRevenue streams
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Guiding questions (1)
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Offer
• Value proposition
• What value do your deliver to the customer?
• What customer problem are you solving?
• Which jobs are you helping them get done?
• Which customer segments do you serve? What products and services do you offer to each?
Customers
• Customer segments
• Customer relationships
• Channels
• Who are you creating value for?
• How do you segment your market and which segment (“niche”) do you focus on initially?
• How do you acquire, keep, and grow your customer base (customer relationships)?
• How do you reach those customers?
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Guiding questions (2)
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Profit Formula
• Revenue streams
• Cost structure
• What value are customers willing to pay for?
• What revenue streams do you have, and how much does each stream contribute?
• What are your most important costs? Which activities/resources are most expensive?
• Is your business model cost- or value-driven?
Infrastructure
• Key resources
• Key activities
• Key partners
• What resources/activities are required in order to deliver the value to the customer?
• Examine your distribution channels, customer relationships, and revenue streams!
• Who are your key suppliers and partners (eg intermediaries, complementors)?
• Which resources/activities do you acquire?
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Business model canvas tools
• Most common way of using the canvas is the paper version: describe your business model in 15 min– A PDF version of the canvas can be downloaded here: http://
businessmodelgeneration.com/canvas
• There are various online tools that support editing and collaboration of business model canvases– A Google Docs version is here: http://agile.dzone.com/news/
how-create-business-model (go to File | Make a copy...)
• There are also mobile apps that help you capture and share your business model designs– http://businessmodelgeneration.com/toolbox– http://www.businesscanvas.co/app-tour (a LTW company!)
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2. Common business models
• Examples of using the canvas– One-time sales model– Subscription model– Multi-sided platform model– Freemium model
• Legend– Flow of value to customers– Flow of value to company
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V$
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One-time sales model
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Engineers
& sales
Design
and build
product
Value
propositionCustomer
segment
Productsales
IP
Internet
Salesforce
Product
development
Suppliers
Human
resources
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Subscription model
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Developers
Design
and build
serviceAccess
capability
Customer
segment
Basefee
Servicehosting
eg Cloud
provider
Recurringfee
Service
development
cost
Salaries eg Cloudfee
Access
to content/
service
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Multi-sided platform model
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Network
effect
Platform
Develop
& maintain
platform
Value
proposition#1
Value
proposition#2
Revenue
flow #1Revenue
flow #2Platform
development
& mgmt
Customer
segment#1
Customer
segment#2
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Freemium model
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Platform
Develop
& maintain
platform
Free basic
service
Premium
service
Large
base of
free users
Small base
of paying
users
Free basic
servicePaid
premiumservice
Fixedcosts
Cost offree
service
Cost of
premiumservice
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FixMyStreet.com
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FixMyStreet.com canvas
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Open source
platform
Develop
& maintain
platformEmpowered
citizens
Reducedcosts
Residents
CityCouncils
Freeaccess
Servicefees
Platform
development
& mgmt
Web &
mobile app
Customize
platform
Customization Sales
ReferralsOpen source
community
(platform)
Residents
(reports)
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3. Modeling your ecosystem
• Strategy traditionally focused on execution• Execution focus is on developing value proposition,
operations, and monitoring competition• Creates a blind spot that hides dependencies• Wide-lens perspective: expand your focus to your
entire ecosystem (partners and environment)• Delivery of your value proposition depends on your
ability to align your strategy with your partners
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Ecosystem risks
• Co-innovation risk: who else needs to innovate in order to your innovation to succeed?– Success of an innovation depends on complementors
(technology, procedure, or organization)– Help your weakest complementor to succeed
• Adoption chain risk: who else needs to adopt your innovation before end-consumers can assess it?– Uncertainty of market success increases with number of
intermediaries that must adopt innovation– Identify bottleneck partner in adoption chain and either i)
subsidize them, ii) focus on a niche and provide exclusivity, or iii) circumvent them via an alternative path
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Value blueprint
• Value blueprint is about constructing a picture of your entire ecosystem at the start
• Judge risk of all required ecosystem elements as red (show stopper), yellow, or green
• Need to move a cohort of partners in the same direction: need to reassign value captured to the weakest link in your ecosystem
• Value blueprint is a map that makes your ecosystem and dependencies explicit
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What a value blueprint shows
• End customer (who ultimately adopts?)• Your own project (what do you need to deliver?)• Suppliers (what inputs do you need?)• Intermediaries (what stands between you and your
end customer? who touches your offer?)• Complementors (what else is required before each
intermediary adopts the offer & moves forward?)• Co-innovation and adoption chain risks
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Value blueprint (template)
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You Intermediary EndCustomer
Supplier 1
Complementor
Complementor 2
Supplier 2
Supplier 3
Supplier toComplementor 1
Supplier toComplementor 1
Supplier toComplementor 2
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Battle of e-readers: Sony vs Amazon
• Sony and Amazon built ecosystems using the same pieces (e-books, e-readers, publishers, store, ...)
• Sony’s competence was in hardware, left a blind spot wrt the dependencies on content providers
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OtherComponents
SonyReader Retailers End
Customer
Sony DRM
E-Ink Screen
Authors PublishersSony
Connect
Connectivityvis USB
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Amazon’s Kindle ecosystem
• Amazon was well-positioned in the e-book ecosystem, but its expertise was not in hardware
• Different from Sony, Amazon played the role of an integrator, delivering a whole customer solution
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AmazonDRM
AmazonKindle
Amazon.com
EndCustomer
Publishers
Connectivityvia wireless
Authors
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Leadership prism
• Tool to assess benefit to each actor in the value blueprint: surplus = relative benefit – cost
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Valueproposition
Partner A
Partner B
Partner C
Partner D
Partner E
Partner F
Relativebenefit
Cost Surplus
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4. Key lessons
• Business model canvas allows you to test your assumptions about your business
• Value blueprint and leadership prism allow you to model your role in a business ecosystem
• Business model canvas gives you your customer value, unique advantage, and financials
• Value blueprint and leadership prisms allow you to articulate the value for your partners
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Further readings
• Johnson, M. (2010), Seizing the White Space: Business Model Innovation for Growth and Renewal, Harvard Business Press
• Osterwalder, A. & Pigneur, Y. (2010), Business Model Generation, John Wiley & Sons
• Muegge, S. (2012), Business model discovery by technology entrepreneurs, April, TIM Review
• Adner, R. (2012), The Wide Lens, Portfolio/Penguin
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Highly recommended
• If you enjoyed this presentation, you may like these articles on technology entrepreneurship …
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http://amzn.to/VNKxlx
http://www.timbooks.ca