lec11
DESCRIPTION
TRANSCRIPT
4-1
4-2
Chapter 4
Business
Models
McGraw-Hill/Irwin Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
4-3
Chapter 4: Business ModelsChapter 4: Business Models
• Questions answered in this chapter:– What are the four components of an online
business model?– Do firms compete on value propositions or value
clusters?– What are the approaches to developing an online
offering, whether the business is providing a product, service, or information?
– What is a successful, unique resource system? What are the characteristics of good resource systems?
– What are the revenue sources available to firms?
4-4
Value ClusterValue Cluster
Online OfferingOnline Offering
Resource SystemResource System
Financial ModelFinancial Model
Exhibit 4-1: Components Exhibit 4-1: Components of a Business Modelof a Business Model
4-5Value Propositions and Value ClustersValue Propositions and Value Clusters
• Value Proposition-requires management to specify three things:
– Target segment– Focal customer benefits– Key resource that give market advantage
• Value Cluster- value proposition consisting of a cluster of composed of three parts:
– Choice of target customer segments– Particular focal combination of customer-driven benefits– Rationale for why this firm and its partners can deliver the value
cluster in a significantly better way than competitors
4-6Value Propositions and Value Clusters Value Propositions and Value Clusters (cont’d)(cont’d)
• Choice of Segments– Market size and growth rates– Unmet or insufficiently met customer needs– Weak or nonexistent competitors
• Choice of Focal Customer Benefits– Single-benefit approach– Multiple-benefit approach
• Choice of Unique and Differentiating Capabilities– Tangible assets– Intangible assets– Capabilities of the organization
4-7Quality of a Value Proposition or ClusterQuality of a Value Proposition or Cluster
• Customer Criteria.
– Do target customers understand the proposition or cluster?
– Is it relevant to their needs?
– Is it believable?
– Is it perceived as unique or indistinguishable from other propositions or clusters?
– Will it provoke action on the part of the target customer?
4-8Quality of a Value Proposition or ClusterQuality of a Value Proposition or Cluster
• Company Criteria.
– Will the organization “rally around” the proposition or cluster?
– Does the company have the resources or capabilities to own this cluster?
– Will it block or facilitate the eventual move to additional vertical markets?
4-9Quality of a Value Proposition or ClusterQuality of a Value Proposition or Cluster
• Competitive Criteria.
– Are other competitors trying to hold a similar proposition or cluster?
– Can current or future competitors match this cluster?
– How easy is it for future competitors to match this cluster?
4-10
The Online OfferingThe Online Offering
• Scope of the Offering– Category-Specific Dominance-Companies that
focus exclusively on one product category, such as flowers.
– Cross-Category Dominance- The extension of product offerings from a single category to additional product categories, such as Amazon.com.
4-11Exhibit 4-2: Customer Decision Exhibit 4-2: Customer Decision Process — Flower ExampleProcess — Flower Example
DisposalDisposal
LoyaltyLoyalty
SatisfactionSatisfaction
Purchase DecisionPurchase Decision
Evaluation of AlternativesEvaluation of Alternatives
Information SearchInformation Search
Problem RecognitionProblem Recognition
PREPURCHASE
PURCHASE
POSTPURCHASE
4-12Exhibit 4-3: Egg Diagram for 1-800-Flowers.comExhibit 4-3: Egg Diagram for 1-800-Flowers.com
Flower / Gift Decision Process
Need Recognition
Search for Ideas and Offerings
Purchase Decision
Message Selection
Post-Sales Support and Perks
Education on Flowers and Decoration
Gift reminder service Holiday specials Everyday celebration suggestions Special occasion suggestions
Birthday Gift Central Gift by occasion Gift by price Monthly gift clubs Corporate gift services
Ideas and Information
Post-Sales Support
Product price Product picture Product description Delivery information Delivery availability
Physical cards in gifts E-mail a bouquet
Order receipt e-mail Q&A chat FAQ Customer service
inquiry form
Perks Miles earned with
flower purchases Free gifts Discounts at AOL &
BN.com with flower purchases
Member specials
“Care and handling” “Do it yourself” Special events and
educational workshops held at stores
Floral ideas Garden ideas Home ideas Gift ideas Gourmet ideas Store locator Recommendations by budget Bestsellers
Evaluation of Alternatives
Gift Recommendations
Shopping basket E-commerce transaction Special shopping features
– Delivery outside U.S.– 1-800-lasfloras.com
Product Offering
Source: Adapted from Mohanbir Sawhney, “Making New Markets,” Business 2.0 (May 1999): 116–21.
4-13
• Modifications to the activity system logic for the online marketplace– Shift from physical world to virtual and
back to physical world
– Shift from a supply-side focus to a demand-side focus
– Shift from resources to benefits
– Shift from single to multifirm systems
What Is a Successful Resource System?What Is a Successful Resource System?
4-14
• Step 1: Identify core benefits in the value cluster
• Step 2: Identify resources that relate to each benefit
• Step 3: Identify to what degree the firm can deliver each benefit
• Step 4: Identify partners who can complete resources
Specifying a Resource SystemSpecifying a Resource System
4-15
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 Customers
Wide Reach to Customers
Widespread
Easy Access
Widespread
Easy Access
Multiple Contact Points
Multiple Contact Points
Popular WebsitePopular Website
High Quality of Flowers
High Quality of Flowers
TechnologyTechnologyStrong Brand
NameStrong Brand
Name
Strong Distribution
Network
Strong Distribution
Network
=Resources
= Core Benefits
Core Benefits
Exhibit 4-4: 1-800-Flowers.com Resource SystemExhibit 4-4: 1-800-Flowers.com Resource System
4-16
• Uniqueness of the system
• Links between resources and benefits
• Links among resources in the system
• Links among resources
• Links between virtual world and physical world business systems
• Sustainable advantage
Criteria to Assess the Criteria to Assess the Quality of a Resource SystemQuality of a Resource System
4-17Exhibit 4-5 : Online/Offline Egg Diagram Exhibit 4-5 : Online/Offline Egg Diagram for 1-800-flowers.comfor 1-800-flowers.com
Off-line Product Offering
Special events and educational workshops held at stores
Prompts on toll free number recording Suggestions from CSRs* in stores and via phone
Prompts on toll free number recording
Suggestions from CSRs* in stores and via phone
Brochure
Suggestions from CSRs in stores via phone
Brochure
Information from CSRs in store and via phone
Brochure
Purchase in-store Purchase via phone
In-store specials Specials offered
via phone
*CSR = Customer service representative
Flower / Gift Decision Process
Need Recognition
Search For Ideas and Offerings
Purchase Decision
Message Selection
Post Sales Support and Perks
Education on Flowers and Decoration
Gift reminder service Holiday specials Everyday celebrations suggestions Special occasion suggestions
Gift guru Favorite gifts Gift frequency Gift impossible Gift baskets Corporate gift services
Ideas and Information
Post-Sales Support
Product price Product picture Product description Delivery information Delivery availability
Gizmo fully-animated greeting cards
Physical cards in gifts
Order receipt email eQ&A online customer
service FAQ Customer service inquiry
form
Perks
Miles earned with flower purchases
Free gifts Discounts at AOL &
BN with flower purchases
Member specials
“Care and handling” “Do it yourself”
Floral ideas Garden ideas Home ideas Gift ideas Gourmet ideas Store locator Recommendations by budget Best sellers
Evaluation of Alternatives
Gift Recommendations
Shopping basket E commerce transaction Special shopping features
– Delivery outside U.S.– 1-800-lasfloras.com
On-line Product Offering
In-store customer service
Customer servifce on toll-free number
Select card in-store Select card via phone
4-18
• Portal agreements (AOL, Yahoo, MSN, etc.)
• Anchor tenant agreements (exclusive partnerships)
• Promotion agreements (cross industry promotions such as frequent-flier miles, telephone discount rates, gift certificates, etc.)
The Role of PartnershipsThe Role of Partnerships
4-19
Revenue ModelsRevenue Models
• Advertising- Earning revenue through the selling of ads (banner or interstitial), site sponsorships, event underwriting, or other forms of communication
• Product, Service, or Information Sales- Income generated from the sale of goods on the site
• Transaction- Revenue accrued from charging a fee or taking a portion of the transaction sum
• Subscription- Revenue generated through subscriber fees for magazines, newspapers, or other information/service businesses
• License Fees- Revenue generated from licensing of content
4-20
Online Business ModelsOnline Business Models
• Metamarket Switchboard Model
• Traditional and Reverse Auction Models
• Freshest-Information Model
• Highest-Quality Model
• Widest-Assortment Model
• Lowest-Price Model
• Most-Personalized Model
4-21Exhibit 4-6: Summary Exhibit 4-6: Summary of Online Business Modelsof Online Business Models
Business Models
Metamarkets Switchboard
Auction Freshest
Information Highest Quality
Widest Assortment
Lowest Prices Most
Personalized
Core Benefits and Proposition
Single point of access for all needs
Depth and breadth of product as-sortment
Number of ac-tive buyers
Timely and ac-curate informa-tion
High-quality products with exclusivity
Broadest in-ventory possi-ble
Can lead to best prices
Lowest prices Unique prod-uct, service, or experience
Online Offering
Either cate-gory specific of access categories
Usually a large number of products
Broad or tar-geted audi-ence
Concentrates on smaller offerings for smaller mar-kets
Can be either category killer in one category or widest as-sortment across man categories
Niche cate-gory or across wide variety of categories
Geared toward a single buyer
Key Resources
Large, active customer base
Commitment to building
Large base of buyers and sellers
Good, reliable technology
Strong brand name
Hiring best personnel
Ability to source products
Outstanding customer ser-vice
Strong brand
Significant brand name
Strong logistics to manage brand name
Ability to build strong back-office systems and leverage scale econo-mies
Ability to generate ex-ceptional cus-tomer knowl-edge
Revenue Model
Transaction fees
Product sales Advertising Affiliate deals
Transaction fees
Product and service sales
Subscription Advertising
Product, service, and information sales
Advertising
Product sales Product sales Product sales Subscriptions
Examples
BabyCen-ter.com
Verticalnet CarPoint.com Fashion-
Mall.com
eBay Amazon Auc-
tions Covisint
NYTimes.com Salon.com Business 2.0 Zagat.com
FAO.com Ashford.com
Amazon.com CDNow Sephora.com EBags.com
Lowest-fare.com
Allbooksfor-less.com
Outpost.com
Reflect.com Sevency-
cles.com eDiets.com
4-22
• Value Cluster– Target segments (savvy investors,
“seekers”, “dabblers”)– Key benefits (up-to-the-minute information;
original, in-depth analysis; personal-finance tools; multiple points of access)
– Supportive rationale (experienced editorial staff, multiple forms of media, CBS News and Financial Times brand names)
Marketwatch.com Business ModelMarketwatch.com Business Model
4-23Marketwatch.com Business Model Marketwatch.com Business Model (cont’d)(cont’d)
• Supportive Rationale– Experienced editorial staff with financial
expertise
– Infrastructure allowing access from multiple forms of media
– Credibility through its association with CBS News
4-24Exhibit 4-7: MarketWatch.com Egg DiagramExhibit 4-7: MarketWatch.com Egg Diagram
Learn Getting Started Investor’s Primer IPO Basics Financial Term Glossary
InvestSponsorships by Online
Brokerages Datek Online Fidelity Investments National Discount Brokers Ameritrade Cybertrader ScottradeBroker Decision Center
Planning Tools Sharebuilder Payment Calculator Home Price Check Best Credit Card Rates Insurance QuickQuote
Third-Party Sources Market Guide Hoover’s Online Multex Annual Reports Club INVESTools Over 250,000 Investment
Research ReportsCommunity Private e-mail People Watch Hot Discussions Occasional Polls
US Markets Market Monitor Major Indexes Dollar Volume
Leaders
Commentary Thom Calandra’s
Stockwatch Bambi Francisco’s Net
Sense Bezderick on Bonds (Many other commentary
columns) eNewsletters
Online News Watch E-mail Alerts Real-time Headlines Hotstock Tracker Marketwatch Live eSignalRadio Contribution to
Westwood One
Global Markets Key Rate
Snapshot International
Indexes Non-Us Stocks
Track Investments Portfolio View Portfolio Analyzer Portfolio Allocation Portfolio Tracker
Breaking News
Market Figures
Personal Finance Process
Learn About
Personal Finance
Plan Investment
Strategy
Stay Updated on the Latest News
and Figures
Develop Insight
Invest
Track Investments
Television CBS MarketWatch
Weekend Contributions To:
– CBS Early Show– CBS Evening News– CBS NewsPath
Develop Insight
Futures and Options Futures Contracts After-Hours
FuturesBonds Bellwether Bonds
ReportFunds Fund Profile Fund ChartsStocks Interactive
Charting Historical Charts
4-25
• Resource System– CBS News– Financial Times– Marketwatch.com– BigCharts.com– Content partners (Hoovers, Zacks,
INVESTools, etc.)– Distribution partners (Yahoo, AOL,
Quicken, etc.)
Marketwatch.com Business Model Marketwatch.com Business Model (cont’d)(cont’d)
4-26Exhibit 4-8: MarketWatch.com Exhibit 4-8: MarketWatch.com Resource SystemResource System
=Core Benefits =Resources
Credible Analysis and
Personal Finance Tools
Up-to-the-Minute
Information
Multiple Points of Access
Distribution PartnershipsDistribution Partnerships
Association with CBS
Association with CBSExperienced
Editorial StaffExperienced Editorial Staff
Partnerships with Content ProvidersPartnerships with Content Providers
Available Infrastructure
Available Infrastructure
International Presence
International Presence
CORE BENEFITS
4-27
• Revenue model– Advertising revenue (37% in 2001)– Licensing revenue (52% in 2001)– Other revenue, subscription, etc. (6% in 2001)
• Value model (best information)• Growth model
– Advanced portfolio-tracking tools– International markets– Services to address expanded trading hours– Expand reach to wireless devices– Expand TV and radio shows to more stations
Marketwatch.com Business Model Marketwatch.com Business Model (cont’d)(cont’d)
4-28Exhibit 4-9: Partners Give / Get MatrixExhibit 4-9: Partners Give / Get Matrix
Partners Benefits to Partner:
“Give”
Benefits to MarketWatch.com:
“Get”
CBS News
Experienced editorial staff
24/7 international coverage of financial markets
Real-time financial news
34 percent ownership of MarketWatch.com
Credibility of CBS brand name
Access to CBS facilities
Access to CBS audience of 6.6 million homes
$30 million of rate-card promotion and advertising on CBS channels
Content Partners (e.g., Hoovers,
Zacks, INVESTools)
Access to MarketWatch.com audience
High-quality analysis of financial news
Portion of revenue generated from sales of partner products
Distribution Partners (e.g., Yahoo, AOL,
Quicken)
Users get access to MarketWatch.com content and tools
Advertising and click-through fees collected
Increase in audience reach
Increase in brand recognition
4-29Exhibit 4-10: MarketWatch.com’s Exhibit 4-10: MarketWatch.com’s Revenue DistributionRevenue Distribution
18.03
34.95
17.98
5.26
15.81
24.77
1.643.15 3.09
0
5
10
15
20
25
30
35
40
1999 2000 2001
Advertising
Licensing
Other