PACIS05

Slide1 : Bangkok andgt; PACIS ‘05 andgt; July 2005 E-Business Models and Disruptive Behaviors andgt; Business Design disruptive services on the Internet: Skype vs. Telco Zurich/Bangkok - alex@businessmodeldesign.com - http://www.businessmodeldesign.com Business Design BusinessModelDesign.Com Introduction WHY CONCENTRATE ON BUSINESS MODELS motivations research in b-models models selected STUDYING SKYPE’S DISRUPTIVE POTENTIAL skype comparison DELPHI STUDY Rafii experiment outcome Conclusion Table of content University of Lausanne Ecole des Hautes Etudes Commerciales (HEC) BusinessModelDesign.Com Alexander Osterwalder, University of Lausanne Yves Pigneur, University of Lausanne


About Me : About Me University of Lausanne Switzerland www.hec.unil.ch BusinessModelDesign.com Switzerland/Thailand www.businessmodeldesign.com The Constellation for AIDS Competence Belgium/Thailand www.aidscompetence.com


Agenda : Agenda WHY CONCENTRATE ON BUSINESS MODELS Motivations What is a business model Research evolution in business models Selected Models andgt; Business Model Ontology andamp; e3-value STUDYING SKYPE’S DISRUPTIVE POTENTIAL andgt; COMPARING BUSINESS MODELS (INSURGENT VS. INCUMBENT) Intro Skype Business Model Ontology (9 business model building blocks) andamp; e3-value Conclusions DELPHI STUDY andgt; DISRUPTION PHASES An experiment to evaluate Skype’s disruptive potential


Disruptive technology : A disruptive technology is a technology or innovation def 'that results in worse product performance, at least in the near-term... [It] brings to the market a very different value proposition than had been available previously... Products that are based on disruptive technologies are typically cheaper, simpler, smaller, and, frequently, more convenient to use. [But, they generally] underperform established products in mainstream markets.' Disruptive technology time performance market rupture New replaces old technology Market for old technology Market for new technology [Christensen, 1997] a b c d VoIP (Skype)?


Technology roadmap (and landscape) : Technology roadmap (and landscape) [Zurcher and Kostoff, 1997] [Rinne, 2004[ Market Product Technology time 2


Thinking about Disruptive Business Models : Thinking about Disruptive Business Models We are used to thinking about disruptive technologies Internet, SMS, RFID, P2P, VoIP, WiFi, etc. We are used to thinking about disruptive processes Just-in-time, business process outsourcing (BPR), etc. But how do we reason about disruptive business models? E.g. no-frills-airlines E.g. online brokerage


Business Models not only Technology and Products lead to Disruption : Business Models not only Technology and Products lead to Disruption Working hypothesis: it is the business model of an insurgent that replaces an incumbent. We studied and compared the business model of an insurgent and an incumbent in the telecommunication industry Are the business model methods that we have been working on useful for comparing business models? And, particularly, are they useful in the field of disruptive business models?


Goals of this Tutorial : Goals of this Tutorial Theoretical/conceptual goal: mapping, understanding and comparing business models and particularly their disruptive potential bring conceptual business model research to another level Practical goal as an executive/consultant: be able to map, understand and compare your business model to the one of your competitor by using the concepts outlined in this tutorial Practical goals: be able to design a new, or extend and re-design your existing business model to achieve a competitive edge (in e-business). Map andgt; understand andgt; analyze andamp; compare andgt; reconfirm or reposition


Skype vs. Telco - P2P VoIP vs. phone : Niklass Zennstrom, founder of Skype VOIP application, quotes some Skype statistics. The application currently has 30 million users worldwide in more than 200 countries. Far over 100’000 new users are signing up for Skype daily. Recently Skype surpassed 3 million users being online simultaneously. Average VOIP call lasts about 6 minutes. The early adopters were 18-38 years old males. Skype vs. Telco - P2P VoIP vs. phone http://www.engadget.com Interview March 2005


The Business Model Triangle of Skype : The Business Model Triangle of Skype Strategy Structure Technology Business Model Internet Voice over IP (VoIP) Peer-to-Peer Disrupt the voice communication market Software development in Tallinn, Estonia Business division in London Disruptive Process (Business Process Reengineering BPR) Disruptive Technology (supporting or transforming business) Understanding Environment


Comparing Business Models (similarities & differences) : Comparing Business Models (similarities andamp; differences) Skype’s business Model (insurgent) Telco business Model (Incumbent) 1


Disruption phases: Delphi Study : Disruption phases: Delphi Study [Christensen, 1997] [Rafii, 2002] 2


Business Model Comparison: How? : Business Model Comparison: How?


Business Model Comparison: How? : Business Model Comparison: How?


How do we create a common understanding? : How do we create a common understanding? Courtesy slide: Hans Akkermans Create common understanding with all stakeholders Source: Financial Times, e-procurement, Oct. 2000 create a business model ontology


Find a common language : Find a common language vs. vs.


Mapping, understanding and comparing business models? : Mapping, understanding and comparing business models? Build a model to... Define Seize Describe Store ...the logic of what a firm does and how it does it unstructured information Semi –structured information formalization formal model, understanding andamp; description Intuitive understanding comparison


Business model > evolution : Business model andgt; evolution Occurrences of the term « business model » in business and academic journals (in Business Source Premier) compared to the NASDAQ BUZZWORD or MEANINGFUL ARTIFACT?


Business model: buzzword or meaningful artifact? : Business model: buzzword or meaningful artifact? A buzzword with no precise definition? […] Executives, reporters and analysts who use the term don't have a clear idea of what it means. They use it to describe everything from how a company earns revenue to how it structures its organization or … An artifact aggregating … the value a company offers to one or several segments of customers, and the architecture of the firm and its network of partners for creating, marketing and delivering this value and relationship capital, in order to generate profitable and sustainable revenue streams. [Linder, 2000]


Business Models in Literature: A Place of Confusion : Business Models in Literature: A Place of Confusion non-conceptual use term simply refers to the way a company does business conceptual use conceptualization of business models finite number of business models a limited number of business model types exist in reality: Infinite number of business models every company has a unique business model that can be described through modelling Business models preoccupation: classification, types preoccupation: meta-models, reference models, ontologies hybrids


What is a (Conceptual) Business Model? : What is a (Conceptual) Business Model? It’s a model of the business of a company … so it’s not a process model… It’s a common understanding of the business idea … this means a collection of concepts that allow to describe and express the idea Business Model Concept Business Model A Business Model B eBay Amazon Concepts that are to be found in every business model in order to capture its business logic/idea Instances of the concepts Value Proposition Distribution Channels … Auctions Web Retailing


Evolution of research in business model : Evolution of research in business model define andamp; classify business models list business model components describe business model elements model business model elements apply business model concept Rappa 2001 Timmers 1998 Tapscott, 2000 Linder andamp; Cantrell 2000 Magretta 2002 Afuah andamp; Tucci 2001 Hamel 2000 Weill andamp; Vitale 2001 Gordijn 2002 Osterwalder andamp; Pigneur 2002 Geerts and McCarthy, 2002 definitions andamp; taxonomies 'shopping list' of components components as building blocks reference models andamp; ONTOLOGY applications andamp; conceptual tools activity outcomes authors Modelling Rigour (towards a business model ontology)


The Business Model Ontology : The Business Model Ontology Value Proposition


The Nine Elements Compared to the Business Model Literature : The Nine Elements Compared to the Business Model Literature


Modeling Rigor : Modeling Rigor Mentioning Elements Describing Elements Modeling Elements


Value proposition : Value proposition What do we offer to our customers? Reasoning (use, risk, effort) Life cycle (creation, appropriation, use, renewal, transfer) Value level (me-too, innovation/imitation, innovation) Price level (free, economy, market, high-end) Value proposition Customer group Core capabilities requires targets 1 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


Comparing Value Propositions : Comparing Value Propositions Free VoIP Broadband Internet Users targets SkypeOut SkypeIn andamp; voicemail Value Proposition Target Customer Core Capacity Large user base requires Interconnectivity Create VAS Handle Prepayment (CC) Listen andamp; adapt Handle Rapid Growth


Comparing Value Propositions : Comparing Value Propositions Voice Calls (in/out) Private Customer Connecting Users Data Services Value Added Services Interconnectivity Create VAS Business Customer Telco Carriers Network Traffic Wholesale Business Services Free Network Capacity SCM requires targets Value Proposition Target Customer Core Capacity Telco


Comparing Value Propositions (continued) : Comparing Value Propositions (continued)


Customer group : Customer group Who are our customers? Customer group Value proposition Reasoning (segment, community, …) CRITERION Category targeted by 2 Categorizations of the population into social class or psychologically defined groups Area where a firm can specialize and gain competitive advantage By having lower costs or customer-satisfying differentiation


Comparing Customer Groups : Comparing Customer Groups Free VoIP Broadband Internet Users targets SkypeOut SkypeIn andamp; voicemail Voice Calls (in/out) Private Customer targets Data Services Value Added Services Business Customer Telco Carriers Network Traffic Wholesale Business Services Value Proposition Target Customer SKYPE TELCO


Comparing Customer Groups (continued) : Comparing Customer Groups (continued)


Distribution channel : How do we reach our customers? Distribution link Distribution channel Customer group Value proposition by delivers serves Actor refined by is a Customer buying cycle (awareness, evaluation, purchase, after sale) Category (network, internet, call center, …) 3 Distribution channel A channel can be defined as a set of links or a network via which a firm 'goes to market' and delivers its value proposition.


Comparing Distribution & Communication Channels : Comparing Distribution andamp; Communication Channels Skype Website Broadband Internet Users Free VoIP delivers serves Viral Marketing Accessory Vendors SkypeOut SkypeIn andamp; Voicemail Distribution Channel Target Customer Value Proposition Software


Comparing Distribution & Communication Channels (continued) : Comparing Distribution andamp; Communication Channels (continued) Phone Private Customer Voice Calls (in/out) delivers serves Retail Shops Sales Force Data Services Value Added Services Business Customer Telco Carriers Traditional Marketing Website Network Traffic Wholesale Business Services Distribution Channel Target Customer Value Proposition Telco


Comparing Distribution & Communication Channels (continued) : Comparing Distribution andamp; Communication Channels (continued)


Relationship mechanism : Relationship mechanism How do we get and keep our customers? Relationship mechanism Reasoning (acquisition, retention, add-on selling, …) Category (trust, personalization, brand…) Customer group Value proposition concerns Distribution link 4


Comparing Relationship Mechanisms (continued) : Comparing Relationship Mechanisms (continued)


Core capabilities and resources : Core capabilities and resources What are our key competencies? 5 Resource Value proposition Actor by Category (generative, transformative, …) required by Core capability is a Resource (ASSETS) available andamp; useful in detecting and responding to market opportunities or threats Capability (KNOW-HOW) Aptitude to exploit and coordinate resources to create, produce, and/or offer products and services to a market


Comparing Core capabilities and Resources : Comparing Core capabilities and Resources Free VoIP Large user base requires SkypeOut SkypeIn andamp; voicemail Interconnectivity Create VAS Voice Calls (in/out) Connecting Users requires Data Services Value Added Services Interconnectivity Create VAS Network Traffic Wholesale Business Services Free Network Capacity SCM Value Proposition Core Capacity Value Proposition Core Capacity Handle Prepayment (CC) Listen andamp; adapt Handle Rapid Growth Telco


Slide41 :


Value configuration : Value configuration How do we operate and deliver? 6 Value activity Value configuration Actor by Category {Value chain, Value shop, Value network …} activity level activity nature needs (in) implements Resource Value proposition refined by is a Category {principal, support …} creates (out)


Partnership Agreement : Partnership Agreement How do we collaborate? Partnership agreement Actor with Category {chain, market, network …} strategic importance degree of integration degree of competition substitutability concerns Core capability Distribution channel Value configuration 7


Comparaison of business models > value configuration > e3-value : Comparaison of business models andgt; value configuration andgt; e3-value Telcos [Gordijn, 2002]


Comparing Value Configurations : Comparing Value Configurations


Comparing Partnership Agreements : Comparing Partnership Agreements


Comparing Actors : Comparing Actors ACTORS Skype Users Broadband provider Device Manufacturer andamp; Vendor Telco carrier Acquirer Technology Partners Translator DIFFERENCES IN THE VALUE EXCHANGES COMPARED TO TELCOS Free Skype-to-Skype Customer need for broadband connection Skype does not sell devices Outsourced payment processing (credit card) ACTORS Telco Private customers Business customers Device Manufacturer andamp; Vendor Telco carrier Translator DIFFERENCES IN THE VALUE EXCHANGES COMPARED TO SKYPE Telco sells its network capacity Telco sells devices and accessories Telco purchases devices and accessories from suppliers Telco


Revenue stream : Revenue stream What are our revenues? Our pricing? Revenue stream Category {subscription, sale, advertisement …} concerns Customer group Value proposition Distribution link 8


Comparing Revenue Streams : Comparing Revenue Streams SkypeOut Prepaid Other VAS Prepaid Voice income SkypeOut concerns Wholesale Network Traffic Business Solutions income VAS Website VAS income Broadband Internet Users Revenue Stream Value Proposition Revenue Stream Telco Distribution Channel Customer Group Mail/Billing Value Proposition Distribution Channel Customer Group Voice Calls (in/out) Data Services Value Added Services Network Traffic Wholesale Business Services Data Income Private Customer Business Customer Telco Carriers Internet


Comparing Revenue Streams (continued) : Comparing Revenue Streams (continued)


Profit and cost account : Profit and cost account What are our costs? Cost account Category concerns Core capability Partnership Value configuration 9


Comparing Profit and Cost Accounts (continued) : Comparing Profit and Cost Accounts (continued)


Disruption phases: Delphi Study : Disruption phases: Delphi Study [Christensen, 1997] [Rafii, 2002]


Skype’s disruptiveness profile … : Skype’s disruptiveness profile … Experiment [-3] [+3]


Delphi Study > Skype’s Disruptiveness Profile : Delphi Study andgt; Skype’s Disruptiveness Profile


Delphi Study > Incumbent Retaliation : Delphi Study andgt; Incumbent Retaliation


Summary of Skype’s Disruptive Business Model Elements : Summary of Skype’s Disruptive Business Model Elements


Visual Summary of Skype’s Disruptive Business Model Elements : Visual Summary of Skype’s Disruptive Business Model Elements Telco


Based on other Business Model Building Blocks : Based on other Business Model Building Blocks Because there is no network management Because it is based on existing 'free' infrastructure Because it extensively uses the Internet


Summary of Skype’s challenges / incumbents retaliation : Summary of Skype’s challenges / incumbents retaliation


Visual Summary of Skype’s challenges / incumbents retaliation : Visual Summary of Skype’s challenges / incumbents retaliation Skype Telco


The Environmental Model: Other factors : The Environmental Model: Other factors Value Propositions Actors Markets Issues influence influence influence adopt offer


Next step > profitability evaluation > e3value : Next step andgt; profitability evaluation andgt; e3value


Next Step > Computer Aided Business Design/Engineering (CABD/CABE) : Next Step andgt; Computer Aided Business Design/Engineering (CABD/CABE) Business Model Design andamp; Communication (i.e. the drawing board) Requirements Engineering Balanced Scorecard Knowledge Management andamp; Visualization Automatic Comparison (e.g Through Ontologies) DESIGN SCIENCE


Further Research : Further Research


Other Disruptive Business Models : Other Disruptive Business Models [Osterwalder 2004, Understanding ICT-based Business Models in Developing Countries, IJITM 3(2-4)] QUALITATIVE RESEARCH Grameen Village Phones Bangladesh Chiang Mai Group Thailande/World


Interviews: Evaluating Business Model Usage : Interviews: Evaluating Business Model Usage ability to create a transparent big picture creation of a commonly understood language helps addressing fundamental questions [Osterwalder and Pigneur, 2004, Investigating the Use of the Business Model Concept through Interviews, ICEB, Beijing] QUALITATIVE RESEARCH


Business Model Case Studies : Business Model Case Studies fidelity with real world phenomena? is the business model concept applicable? appropriateness of the building block concepts? Masters Students’ Class Work andamp; thesis QUALITATIVE RESEARCH


Research Agenda: Business IT/IS Alignment - Understanding & Integration : BUSINESS strategy IT strategy IT/IS STRATEGY BUSINESS MODEL Research Agenda: Business IT/IS Alignment - Understanding andamp; Integration Function integration Strategic fit BUSINESS IT strategy infrastructure [Henderson and Venkatraman, 1993] ORGANIZATION infrastructure IS infrastructure VALUE proposition Value configuration Customer (relationship) Mutual understanding Business and IS integration Balanced Scorecard Technology scope System competencies IT governance [Osterwalder and Pigneur, 2004, Clarifying Business Models: Origins, Present and Future of the Concept, Communications of the AIS] PROSPECTS


Research Agenda: Business IT/IS Alignment - Infrastructure & Application Portfolio : Research Agenda: Business IT/IS Alignment - Infrastructure andamp; Application Portfolio Function integration Strategic fit BUSINESS IT strategy infrastructure Technology scope System competencies IT governance Administrative structure Business processes Skills [Weill and Vitale, 2002] VALUE proposition Value configuration Customer (relationship) Information OBJECT Application User (interface) ORGANIZATION infrastructure IS infrastructure BUSINESS strategy IT strategy IS MODEL IT/IS STRATEGY BUSINESS MODEL IT/IS infrastructure services IT/IS application portfolio [Ward, 2000] [Osterwalder and Pigneur, 2004, Clarifying Business Models: Origins, Present and Future of the Concept, Communications of the AIS] PROSPECTS


Research Agenda: Business IT/IS Alignment - Requirements Engineering : Research Agenda: Business IT/IS Alignment - Requirements Engineering Function integration Strategic fit BUSINESS IT strategy infrastructure [Gordijn and Akkermans, 2003] VALUE proposition Value configuration Customer (relationship) Information OBJECT Application User (interface) ORGANIZATION infrastructure IS infrastructure BUSINESS strategy IT/IS strategy IS MODEL BUSINESS MODEL Business Model Viewpoint Process Viewpoint Information Systems Viewpoint ENTERPRISE MODEL Organization GOAL Process Team (coordination) [Osterwalder and Pigneur, 2004, Clarifying Business Models: Origins, Present and Future of the Concept, Communications of the AIS] PROSPECTS


Outlook: Business Models and Interoperability : Outlook: Business Models and Interoperability PROSPECTS Vertical Interoperability Horizontal Interoperability Company A Company B


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