Types of Innovation

1. Types of Innovation • Product and Service Innovation • Process Innovation • Technology Innovation • Business Model Innovation Bob Higgins, founder and managing general partner of Highland Capital Partners, is quoted in Johnson, Christensen and Kagermann’s Harvard Business Review article as saying, “I think historically where we [venture capitalists] fail is when we back technology. Where we succeed is when we back new business models.”

2. Operating Margin Growth in Excess of Competitive Peers compound annual growth rate over five years [Source: IBM, CEOs are expanding the innovation horizon: important implications for CIOs]

3. Benefits Cited by Business Model Innovators percent of respondents [Source: IBM, Global CEO Study 2006]

4. The Power of the Business Model • Movies - “EcoSystem” • Horizontal - Production companies, HBO, Blockbuster [$300MM in late fees in 2005], Movies on-Demand, Netflix [mail], Netflix pivot to streaming, Apple TV, Google TV, Cable Companies • Technology – VHS/Beta, DVD, BlueRay, Bandwidth, HD TV, use of internet for entertainment

5. Competing on Business Model • Examples • Zip Car - Very short term car rental, subscription, use fees • Apple Music - One song at a time, revenues from devices + music, closed system • NetJets – Fractional ownership • Lending Club – Peer to peer lending, end run around bank • Google – small & medium sized business do direct, national and international ads, end run around agencies; individuals sell advertising space

6. Competing on Brand • Different than competing on brand • A brand is the way a person feels about a product or company • A business model is the way the person transacts business with the company • Brand or Business Model? • Federal Express • Southwest Airlines • AT&T Uverse

7. business model framework INFRASTRUCTURE OFFER CUSTOMER Key Activities CUSTOMER RELATIONSHIPS Key Partners VALUE PROPOSITION CUSTOMER SEGMENTS Key Resources/ Capabilities DISTRIBUTION CHANNELS COST STRUCTURE REVENUE STREAMS FINANCE a business model describes the value an organization offers to various customers and portrays the capabilities and partners required for creating, marketing, and delivering this value and relationship capital with the goal of generating profitable and sustainable revenue streams [Osterwalder (2004) The Business Model Ontology]

8. STRATEGY BUSINESS MODEL ORGANIZATION TECHNOLOGY the business model’s place in the company

9. the big picture Apple iPod/iTunes Key Activities Customer Relationship Obsessive brand Loyalty Switching costs Hardware design Marketing Key Partners Key Resources Value Proposition Distribution Channel Target Customer People Apple Brand Content agreements Ipod hardware Itunes software Seamless music Experience Search, buy and Enjoy digital music Retail stores Apple stores Apple.com Itunes Store Mass market Record companies OEMs Cost Structure Revenue Model People Manufacturing Marketing & sales Large hardware revenues Some music revenues

10. Value creates revenues Apple iPod/iTunes Key Activities Customer Relationship Obsessive brand Loyalty Switching costs Hardware design Marketing Key Partners Key Resources Value Proposition Distribution Channel Target Customer People Apple Brand Content agreements Ipod hardware Itunes software Seamless music Experience Search, buy and Enjoy digital music Retail stores Apple stores Apple.com Itunes Store Mass market Record companies OEMs Cost Structure Revenue Model People Manufacturing Marketing & sales Large hardware revenues Some music revenues

11. Creating value requires infrastructure Apple iPod/iTunes Key Activities Customer Relationship Obsessive brand Loyalty Switching costs Hardware design Marketing Key Partners Key Resources Value Proposition Distribution Channel Target Customer People Apple Brand Content agreements Ipod hardware Itunes software Seamless music Experience Search, buy and Enjoy digital music Retail stores Apple stores Apple.com Itunes Store Mass market Record companies OEMs Cost Structure Revenue Model People Manufacturing Marketing & sales Large hardware revenues Some music revenues

12. Infrastructure generates costs Apple iPod/iTunes Key Activities Customer Relationship Obsessive brand Loyalty Switching costs Hardware design Marketing Key Partners Key Resources Value Proposition Distribution Channel Target Customer People Apple Brand Content agreements Ipod hardware Itunes software Seamless music Experience Search, buy and Enjoy digital music Retail stores Apple stores Apple.com Itunes Store Mass market Record companies OEMs Cost Structure Revenue Model People Manufacturing Marketing & sales Large hardware revenues Some music revenues

13. the profit zone Apple iPod/iTunes Key Activities Customer Relationship Obsessive brand Loyalty Switching costs Hardware design Marketing Key Partners Key Resources Value Proposition Distribution Channel Target Customer People Apple Brand Content agreements Ipod hardware Itunes software Seamless music Experience Search, buy and Enjoy digital music Retail stores Apple stores Apple.com Itunes Store Mass market Record companies OEMs Cost Structure Revenue Model < People Manufacturing Marketing & sales Large hardware revenues Some music revenues

14. start-up Four-Square Key Activities Customer Relationship Key Partners Key Resources Value Proposition Distribution Channel Target Customer Cost Structure Revenue Model