1. 1
A bit about Business
Models

2. 2
Business Model
• Components and
linkages
• Dynamics
Environment
• Competitive
• Macro
Performance
Change
• Properties
• Underpinnings
Determinants of performance

3. 3
Commerce Matrix
From
To
Business
Consumer
Business Consumer
B2C
C2B C2C
B2B
Priceline.com
VerticalNet Amazon.com
eBay

4. 4
Customer value
Scope
Pricing
Sources of revenue
Connected activities
Capabilities
Implementation
Sustainability
Successful Business Model

5. 5
Component of
business model
Question for all business models
1. Customer
value
Is the firm offering its customers
something distinctive or lower cost than
its competitors?
2. Scope To which customers (demographic and
geographic) is the firm offering this
value? What is the range of
products/services offered that embody
this value?
3. Pricing How does the firm price the value?
4. Revenue
source
Where do the dollars come from? Who
pays for what value and when? What
are the margins in each market and
what drives them? What drives value in
each source.
Critical Business Model Questions

6. 6
5. Connected
activities
Which set of activities does the firm
have to perform to offer this value and
when? How connected (in cross
section and time) are these activities?
6. Implementation What organizational structure,
systems, people and environment does
the firm need to carry out these
activities? What is the fit between
them?
7. Capabilities What are the firm's capabilities and
capabilities gaps that need to be
filled? How does a firm fill these
capabilities gaps? Is there something
distinctive about these capabilities that
allows the firm to offer the value
better than other firms and that makes
them difficult to imitate? What are the
sources of these capabilities?
8. Sustainability What is it about the firm that makes it
difficult for other firms to imitate it?
How does the firm sustain its
competitive advantage?
Critical questions for a business model
(continued)

7. 7
Business Model Dynamics
 Blocking Strategies
 unique capabilities
 barriers to entry
 Run Strategies
 changing the playing field
 cannibalization
 Teaming Strategies
 strategic alliances
 high risk

8. 8
Generic strategies and complementary
assets
Complementary assets
High
Low
I II
IIIIV
Imitability
• Run
• Team-up
Joint venture
Strategic alliance
Acquisition
• Internal development
• Block
Tightly
held and
important
Freely
available or
unimportant
• Block
• Team-up
Joint venture
Strategic alliance
Acquisition

9. 9
Who Profits from Innovation
Complementary assets
High
Low
I II
IIIIV
Imitability
Difficult to
make money
Holder of
complimentary assets
makes money
Inventor makes
money
Tightly
held and
important
Freely
available or
unimportant
Party with both
technology and assets
or with bargaining
power makes money

10. 10
Appraising a business model
Level 1
Profitability measures
• Earnings
• Cash flow
Level 2
Profitability predictor measures
Margins
Market share
Revenue share growth rate
Level 3
Component attribute measures
• Value
• Scope
• Price
• Revenue
• Activities
• Implementation
• Capabilities
• Sustainability

11. 11
Componentof
businessmodel
Benchmarkquestions Rank
1.Customervalue Iscustomervaluedistinctfromthatofcompetitors?Ifnot,is
thefirm'slevelofithigherthanthatofcompetitors?
Isthefirm'srateofincreaseincustomervaluehigh,relative
tothatofcompetitors?
H/L
2.Scope Isthegrowthrateofmarketsegmentshigh?
Isfirm'smarketshareineachsegmenthighrelativeto
competitors'?
Ispotentialerosionofproductshigh?Ifso,inwhat
segments?
H/L
3.Price Isthequality-adjustedpricelow? H/L
4.Revenuesource Aremarginsandmarketshareineachrevenuesourcehigh?
Aremarginsandmarketshareineachsourceincreasing?
Isfirm'svalueineachmarketdistinctive?Ifnot,isthelevel
ofithigherthanthatofcompetitors?
H/L
Appraising a Business Model

12. 12
Component of
business model
Benchmark questions Rank
5. Connected
activities
Extent to which activities:
Are consistent with customer value and scope?
Re-enforce each other?
Take advantage of industry success drivers?
Are consistent with firm's distinctive capabilities.
Make the industry more attractive for the firm?
H/L
6. Implementation Is the quality of the team high? H/L
7. Capabilities Extent to which firm's capabilities:
Are distinctive
Are nonimitable
Are extendible to other product markets
H/L
8. Sustainability Has the firm been able to maintain or extend its lead in its
industry.
H/L
Appraising a Business Model (cont)