CCT 355: E-Business Technologies

Class 8: Patterns and Strategic Considerations in Business Models

Administration• Proposal/final project questions• This/next week, BMG book• Final project presentation (in Ignite format) Nov 28

Review• Customer Segments• Value Propositions• Channels• Customer

Relationships• Revenue Streams

• Key Resources• Key Activities• Key Partnerships• Cost Structure

Bundling/unbundling• Large organizations = multiple models of operation• Unbundling helps understand of different business models

operating simultaneously• Three core business foci – innovation, customer relations,

infrastructure management – can operate in synergy but they have their own structures and priorities

Product Innovation• Enables early market entry• Speed to market is key• Premium products/pricing often the result, but that’s OK• Creative talent as key resource

Customer Relationship Management

• Acquisition of new customers expensive – aim to retain customers and keep them satisfied

• High touch orientation – customer comes first orientation• Low touch – KISS – works just fine in some industries where

efficiency, not emotion, is the key• Perception of quality is important – e.g., SERVQUAL and

service “gaps”

Infrastructure• Economies of scale to reduce fixed costs• Low unit costs as priority – transactional rationalization vs.

customer relations or innovation• Cost focus – stressing standardization, predictability and

efficiency• What many MBA/CMA programs stress – rationalization vs.

innovation or engagement – which is why business run only by MBAs or accountants may not be successful!

Long Tail Models• Mass or niche market?• Profit through volume vs. profit through higher margins and

specialization• Often depends on customer segments

Multi-sided platforms• Different approaches to different customer segments• E.g. Google – one model for advertisers, another for web

users, another for content creators, another for software development, would be another still for hardware

• Can link together – vertical integration to cross-populate platforms

Example: LEGO• An example of both long-tail and multiple segments• Certainly a mass market – both in product and spinoffs (e.g.,

Legoland theme parks, partnerships with major cultural products)

• Long tail – “hard to get” sets for adult enthusiasts (approximately 1/3 of market!)

• Mass customization – LEGO DesignByMe

Free• (At least one) customer segments receives services/goods for

free• Advertising model a common example – e.g., broadcast TV,

search engines, increasingly newspapers

Freemium• Basics free, pay for more• Allows for sampling and basic use, targeting power users for

cost recovery• Examples?

Bait and Hook• Free/inexpensive – with a catch• “loss leader” hooks customer in and keeps them locked into

product• Razor blades example – stick could be given away for free,

since $$$ is in the replacement blades• Others?

Open/Closed Business Systems• Internal and external

talent and R&D welcome• Avoids “not invented

here” issues• Open market of IP –

not afraid to acquire (or steal?) if required• Often open for others

to do same

• Believes best in field are local already• R&D as internal

process• Control of innovation

process essential – prying eyes must be kept away

Inside-Out/Outside-In• Inside-out – orgs main purpose is R&D, will sell, license core

ideas out for commercialization• Outside-in – weak commitment to internal R&D, will acquire

or partner with outside resources to innovate• Examples?

Strategic forecasting• Business models must change over time• Factors that influence change include:• Key Trends• Industry Forces• Macroeconomic Forces• Market Forces

Key Trends• Effect of new/emerging technologies?• Changes in regulatory frameworks?• Social, cultural, demographic changes?

Industry Forces• Changes in #/size of competitors?• Threat of new entrants• Substitute products/services?• Changes in suppliers/supply chain?

Macroeconomic Factors• Access to capital?• Global market conditions?• Commodity pricing for key resources?• Infrastructure issues?

Market Forces• Changes in customer segments?• Changes in value propositions?• Changes in revenue/cost structures?

Next week• Design and evaluation of business models