Chapter 5: Business models modified for 2005

1. Chapter 5: Business modelsmodified for 2005 • Questions answered in this chapter: • What is a business model? • Do firms compete on value propositions or value clusters? • How does the firm develop an online offering? • What is a successful, unique resource system? • What are the financial models available to firms? • What business classification schemes seem most appropriate for the new economy? Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

2. Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

3. Do Firms Compete on value Propositions or Value Clusters? Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

4. Do Firms Compete on value Propositions or Value Clusters? (continued) • Choice of Segments • Market size and growth rates • Unmet or insufficiently met customer needs • Week 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 Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

5. Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

6. Quality of a value proposition or cluster • Customer Criteria. Do target customers understand the proposition or cluster? Is it relevant to their needs? Is it perceived as unique or indistinguishable from other propositions or clusters? • Company Criteria. Will the company “rally around” the proposition or cluster? Does the company have the resources or capabilities to own this cluster? • Competitive Criteria. Are other competitors trying to hold a similar proposition or cluster? Can current or future competitors match this cluster? Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

7. How Does a Firm Develop an Online Offering? Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

8. Problem Recognition Information Search PREPURCHASE Evaluation of Alternatives Purchase Decision PURCHASE Satisfaction POSTPURCHASE Loyalty Disposal Exhibit 4-2: Customer Decision Process — Flower Example Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

9. Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

10. What Is a Successful Resource System? • 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 activities to capabilities • Shift from single to multifirm systems Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

11. Specifying a Resource System • Step 1: Identify core benefits in the value cluster • Step 2: Identify capabilities that relate to each benefit (In ed.2 they combine call capabilities resources.) So, this is identify resources. • Step 3: Link resources to each capabilities. (In ed.1, resources was the actual systems, and they are no longer listed in ed.2.) • Step 4: Identify to what degree the firm can deliver each capability • Step 5: Identify partners who can complete capabilities Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

12. From ed.1 Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

13. Exhibit 4-4: 1-800-Flowers.com Resource System Strong Distribution Network From ed.2 Online Gift Center Broad Assortment of Gifts High Quality of Flowers Popular Website Core Benefits Integrated Partner Offers Customer Service Widespread Easy Access Multiple Contact Points Technology Strong Brand Name Wide Reach to Customers = Core Benefits Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models =Resources

14. Criteria to Assess the Quality of a Resource System • Uniqueness of the system • Links between resources and benefits • Links among resources in the system • Links among resources (and supporting systems) • Links between virtual world and physical world business systems • Sustainable advantage Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

15. Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

16. The Role of Partnerships • 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.) Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

17. What Are the Financial Models Available to Firms? Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

18. Revenue 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 Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

19. Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

20. Online Business Models(value models for shareholders) • Metamarket Switchboard Model • Traditional and Reverse Auction Models • Freshest-Information Model • Highest-Quality Model • Widest-Assortment Model • Lowest-Price Model • Most-Personalized Model Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

21. Exhibit 4-6: Summary of Online Business Models Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

22. Example: Marketwatch.com Business Model • 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) Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

23. Marketwatch.com Business Model (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 Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

24. Marketwatch.com Business Model (continued) • Marketspace Offering • Scope: The best provider of financial information and analysis across a number of media • Media: Online, television, radio, wireless devices Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

25. Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

26. Marketwatch.com Business Model (continued) • Resource System • CBS News • Financial Times • Marketwatch.com • BigCharts.com • Content partners (Hoovers, Zacks, INVESTools, etc.) • Distribution partners (Yahoo, AOL, Quicken, etc.) Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

27. Exhibit 4-8: MarketWatch.com Resource System International Presence Distribution Partnerships Up-to-the-Minute Information Partnerships with Content Providers Multiple Points of Access Available Infrastructure Credible Analysis and Personal Finance Tools Association with CBS Experienced Editorial Staff CORE BENEFITS Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models =Resources =Core Benefits

28. Old View of Resource System from ed.1 Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

29. Exhibit 4-9: Partners Give / Get Matrix Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

30. Marketwatch.com Business Model (continued) • Revenue model • Advertising revenue (72% in 1999) • Licensing revenue (21% in 1999) • Other revenue, subscription, etc. (7% in 1999) • 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 Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

31. Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

32. Exhibit 4-10: MarketWatch.com’s Revenue Distribution Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

33. Alternative to Business Value Models:Market-wide Classification Schemes • Porter generic strategy model • differentiation strategy • cost strategy • niche strategy • Sawhney and Kaplan model • business-to-customer hubs • business-to-business hubs (vertical and functional hubs) • Rayport, Jaworski, and Siegal model • Forward-integrated producers • Supply-side aggregators • Backward-integrated user • Demand-side aggregators Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

34. Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

35. Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

36. Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models