Business Model of Co-creation

1. March 19, 2007 Strategic Computing and Communications Technology Business Model of Co-creation STUDENTS: Carlos Penzini Grace Uang Mark Shilmovich Panagiotis Koumantanos Shohei Ishiwata Zach Gillen

2. Agenda • Introduction • Business models • Business model categorization • Case study • Candidate products • Risks & Challenges of Co-creation • Conclusion

3. Introduction What is Co-Creation?- Co-creation is value creation by Firm and Customer together • “It‘s the democratization of industry…we are seeing the emergence of an economy of the people, by the people, for the people.” --Prahalad • Co-creation creates a new dynamic to the producer/customer relationship by engaging customers directly in the production or distribution of value

4. Introduction Locus of co-creation-Co-creation has evolved from customization to experience creation • Ubiquitous connectivity, Low transaction cost of idea and Globalizationby information technology enabled individual users to participate in value creation Experience Innovation PERSONALISED or UNIQUE CUSTOMER VALUE (8) Personalised Experience Value and Knowledge Co-Creation IPOD, AMAZON (US), MEDTRONICS, JOHN DEERE, ON STAR Value Creation In-Use (unique experiences) (7) Real-Time Marketing & Service Adaptation CONTACT CENTRE DIALOGUE, CEMEX and FEDEX TRACKING SYSTEMS (6) New Service Design TELIASONERA, ALARIS MEDICAL SYSTEMS WITHIN MARKET and COMMUNITY THEOMCGROUP (5) Open Community Ideation and Product Design and DevelopmentCOMPUTER GAMES MODS, LINUX, LEGO MINDSTORMS, FIRFOX, INNOCENTIVE WITHIN THE FIRM (4) Mass Customisation ADIDAS, DELL, CAR MANUFACTURERS LOCUS OF VALUE-CREATION (2) New Product Design and Development (Lead User) P&G, SILICON GRAPHICS, VOLVO XC90, HARLEY DAVIDSON, SATURN (3) Existing Product Adaptation (Customer Feedback SONY ANTENNA SHOPS, CISCO KNOWLEDGE CENTRE, MICROSOFT KNOWLEDGEBASE (1) Product “Finishing” IKEA Value Creation Pre-Use (Fixed attribute products) Customization STANDARD CUSTOMER VALUE By THEOMCGROUP

5. Introduction User-Created Content vs. Co-Creation • Co-creation is broader in that it includes any kind of joint value creation between a firm and its customer • while user-generated content refers to content (information, or some form of creative work) • User-created content is one form of co-creation. • User-created content is when an end-user uses a service to mediate the creation and/or distribution of their creative work.

6. Business model Business model-Key question: What is the incentive and how to monetize? • Conventional business model frame work only focuses on Firm, because value was created mainly by Firm • Value is co-created by Firm and Users together in Co-creation. • We need to understand what value is created by each partner and their incentives. Revenue stream so far Revenue stream in co-creation Firm User Firm User User Third party Complicated..

7. Business model Business model categorization- Categorized by monetization of each parties Yahoo Answers, Lego Mindstorm Firm gains revenue by providing platform from user, advertisement, etc User mainly enjoys benefits for free Innocentive, iTMS+iPod, Ebay Firm gains revenue by providing platform User economically benefited by playing on this platform Profit Firm Wikipedia, Linux, (Delicious) Everybody takes part voluntarily. Value incentive is often personal. Craigslist Firm acts like NPO and supports users to gain revenue. No Profit No Profit Profit User

8. Business model Case Studies Profit Firm Craigslist No Profit No Profit Profit User

9. Business model Yahoo answers Proft • Users / Posting Questions • Advertisers Customers Firm No proft No proft Proft User • Yedda • Oyogi • Askville (by Amazon) • Live QnA • Brainboost • Wondir • Answerbug • Answers.com Competitors • ISPs • Browsers • PC • Users / Answering • Other Yahoo Services • (del.icio.us, Flickr etc) Complementors • Hardware • Power Companies • Employees • Bandwidth Suppliers

10. Business model Yahoo answers- Users more interested in non-economical benefit- Company benefited economically from value of network Incentives for Participation Users Company • Reputation management and recognition through leaderboards • Sharing of information and experience without endlessly searching through the Internet • Pay-per-click advertising when using the search option • Bundling with del.icio.us and Flickr into fan sites • Channeling to other Yahoo! services Advertised through the search engine Suggestions for Remuneration Word of Mouth Developing the value network • Yahoo! could try a hybrid method encompassing elements of Google Answers. It could form a pool of experts which the users would have to pay in order for them to answer his question. • More banner advertising Channeling through other Yahoo! services

11. Business model Craigslist Proft • Users / Sellers Customers Firm No proft No proft Proft User • Evite • Friendster • Lavalife • LinkedIn • Meetup • Monster • MySpace • Spring Street • Tickle • Tribe Networks • Yahoo! Competitors • ISPs • Browsers • PC • Users / Buyers Complementors • Hardware • Power Companies • Employees • Bandwidth Suppliers

12. Business model Craigslist- Philanthropic policy attracts users by Anti-eBay style and users trade solid products for profit Incentives for Participation Users Company • Anti-eBay architecture • No advertisement banners • Public service culture attracts a fanatic base • Sense of community • Philanthropic purpose • “serving customers come first and worrying about revenues comes second” Word of Mouth Suggestions for Remuneration • If Craigslist were to change philosophy and become more commercial it could use the following revenue mechanisms: • Posting fee • Transaction fee • Subscription fee • Advertisements Developing the value network Indirect promotion through Craig’s personal interviews

13. Proft Firm No proft No proft Proft User Business model Innocentive • Pharmaceutical Companies • Consumer product firms • Industrial chemical organizations • Rockefeller Foundation • Advertisers Customers • ISPs • Browsers • PC • Solvers / Users • yet2.com • Nine Sigma Inc. • InnovationXchange • R&D labs Complementors Competitors • Hardware • Power Companies • Employees • Bandwidth Suppliers

14. Business model Innocentive- Users have solid economical incentive to participate Incentives for Participation User “Solvers” & “Seekers” Company • Solvers – Recognition, Monetary rewards, Possible Relationship with seeker company • Seekers – Benefit to Cost Ratio = 20:1 for R&D • Posting fee for “seeker” company • Annual fee for “seeker” company in order to access specialized scientific staff • Success commission when a solution is chosen Suggestions for Remuneration Present in Conferences Where Solvers attended Sponsorship of Relevant Events • Instead of basing the remuneration on the “seeker” companies it could be based on the 110,000 scientists and scientific organizations that make up the solver community: • Subscription fee (Versioning based on usage of system) • Fee for access to the detailed problem statement Developing the value network Posted selected challenges in scientific publications

15. Business model Wikipedia Proft • General public Customers Firm No proft No proft Proft User • Britannica.com • Columbia Encyclopedia • Encyclopedia Drammatica • Encyclopedia.com • Information Please • How Stuff Works • Encarta Online • Citizendium • xrefer Competitors • ISPs • Browsers • PC • Users / Posting • Other Wiki projects Complementors • Hardware • Power Companies • Employees • Bandwidth Suppliers

16. Business model WikipediaPhilanthropic interests attracts users quickly Incentives for Participation Users Company • Status, reputation • Heritage to the world (through Wikipedia users are `immortalized`) • There is tracking system to highlight contribution • NPO • Based on donations and fundraising efforts Suggestions for Remuneration Word of Mouth ? Developing the value network Bundling other Wiki projects

17. Business model Summary of business models • Users more interested in non-economical benefit • Company benefited economically from value of network • Users have solid economical incentive to participate Earn profit Firm • Philanthropic interests attract users quickly • Philanthropic policy attracts users by Anti-eBay style • Users trade solid products for profit No Profit No Profit Earn profit User

18. Common characteristics Product Easy to modify or customize by customer Such as hardware that previously shipped hardwired, but now comes with reprogrammable circuitry. Existing online service This makes the cost of communications infrastructure low. Customer Large user community Easy to capture contributors. Possible candidates More opportunities in Co-creation at existing co-creation product iTMS New candidated for co-creation Industry Robotics Cellular phone Characteristics of Businesses with New Opportunities in Co-creation

19. Risk and solution Risks & Challenges ofCo-creation • Privacy • Legal • Brand • Goal divergence & Define objectives. • Initial Effort & Investment to Provide Capabilities for Co-Creation. • Equity of returns & Manage Incentives. • Be careful about who you ask to co-create. • Clarify Rights & Acceptable Use. • Control the channels. • Granularity and Cost of Management & Assembly

20. Conclusion • Technological advances are enabling newly economical applications of co-creation • Co-creation (partnerships with customers) have always been around • As transaction costs fall due to ubiquity of information technology and the marginal costs of forming a partnership decreases, the applications of co-creation begin to include • finer granularity contributions • access to a larger network of potential contributors, (globalization) • increased specialization • community quality monitoring and metrics via reputation systems, attention information, and user ratings.

21. Thank you Q&A