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A framework for defining e-business models

A framework for defining e-business models. September 2002 Yves Pigneur HEC Lausanne yves.pigneur@unil.ch (+41 21) 692.3416. Agenda. INTRODUCTION PRODUCT INNOVATION Value proposition CUSTOMER RELATIONSHIP Target customer Distribution channel (and intermediation) Customer equity

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A framework for defining e-business models

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  1. A framework for defining e-business models September 2002 Yves Pigneur HECLausanne yves.pigneur@unil.ch (+41 21) 692.3416

  2. Agenda INTRODUCTION PRODUCT INNOVATION • Value proposition CUSTOMER RELATIONSHIP • Target customer • Distribution channel (and intermediation) • Customer equity • Revenue & pricing INFRASTRUCTURE OPERATION • Capabilities & resources • Activity configuration • Partnership • Cost model CONCLUSION

  3. BUSINESS STRATEGY I/T STRATEGY BUSINESS SCOPE TECHNOLOGY SCOPE EXTERNAL DISTINCTIVE COMPETENCIES BUSINESS GOVERNANCE BUSINESS SCOPE I/T GOVERNANCE STRATEGIC FIT AUTOMATION LINKAGE ADMINISTRATIVE INFRASTRUCTURE ARCHITECTURES INTERNAL PROCESSES SKILLS PROCESSES SKILLS IS INFRASTRUCTURE AND PROCESSES ORGANIZATIONAL INFRASTRUCTURE AND PROCESSES BUSINESS INFORMATION TECHNOLOGY FUNCTIONAL INTEGRATION IT Alignment [Venkatraman, 1983]

  4. What is a Business Model anyway? • 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 • A business model is • 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.

  5. Why a business model approach to e-strategy? • Positioning • Objectives & goals • Communication of strategy Business Model Strategy Business Processes Information systems Planning level Conceptual architectureof a business strategy Architectural level Avoid re-inventing strategy Implementation level e-Business Technology layer

  6. State of the Art - ontology • The Enterprise Ontology • collection of terms and definitions relevant to business enterprises • Activities and processes, organization, strategy, marketing, time • On-to-knowledge (XML) Content-driven Knowledge-Management through Evolving Ontologies • Electronic Business (EDI) using XML • «To provide an open XML-based infrastructure enabling the global use of electronic business information in an interoperable, secure and consistent manner by all parties» • Other EDI ontology: bizTalk, cXML, CBL Scénario

  7. State of the Art – e-business models • Categorization • According different axes (innovation, integration, control …) • Timmers, Rappa, Tapscott … • Modeling • Concepts and questions • Hamel, Afuah, LinderWeill, Rayport, … • Tools • Computer-aided design • MIT eBusiness Process Handbook (Malone)

  8. State of the Art – business strategy • (Un-)bundling the corporation • Product (What?), Customers (Who?), infrastructure (How?) • Hagel, Markides … • Competence tree • Knowledge, strategy, value creation • Giget, … • Value creation framework • value-creating activities result inofferings provided to customers • Ramirez, Wallin, Norman … WHO WHAT HOW Market Product Activities Capabilities

  9. WHAT? WHO? What is the scope of products and services, its value and benefits for the customer? Who are the customers?How to manage relationships with customers, satisfy them and generate revenues to be on the winning side? HOW? How to organize the resources and competencies? manage the value chain and processes? build alliances?to achieve performance? HOW MUCH? What is the revenue model? the profit model? The cost model, designed to last? e-Business Model Framework (eBMF) Product innovation Infrastructure operation Customer relationship Financial Aspects

  10. Value proposition Product Innovation Capabilities Value Proposition Target Customers setOf isA Offering synonym:Benefice • Description • Reasoning (use, risk, effort) • Life cycle (creation, purchase, use, renewal, transfer) • Value level (me-too, innovation/imitation, innovation) • Price level (attractive, market, high-end) • Categorization (barter, sale, market, buy) What we offer?

  11. Value proposition 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. • In the case of e-business this offer naturally includes a strong information system component, principally the Internet.

  12. reservation ticketless Barcelone Loterie Romande Yield Management easyCar Illustrations Value proposition – Offerings • Facilitate research • and reduced transaction costs • Speed up distribution • particularly for digital goods (written, music, image, software) • Improve the quality of service • by personalization, for example • Improve facility and experience of buying • capitalizing on ludic aspects • Improve the transparency of information • by opening up the information system • Develop a sense of community • and improve the diffusion of knowledge, contacts and trust • Bind complementary products

  13. Value proposition – Customer Service Life Cycle (CSLC)

  14. Value proposition – Value and price levels [Kambil, 1997] Attractive Market High-end Exec jet Concorde Cost High-end Quality, comfort … Underperformers Value frontier Major airlines Me-too Innovation/imitation Innovation EasyJet Low cost (frequent flight, on-time schedule, service) Performance

  15. plate-form: TPN Register, linkom goFish Portals: AOL, Yahoo Zdnet Pressure of buyer competition Group buying: Cendant Mercata Accompany Online buy Electronic market auction: eBay PriceLine Ricardo search: Acses aggregation: EMB Electronic barter Online sale cooperation Pressure of seller Products: Amazon LeShop Brun Passot Services: AutoWeb E*tradeeasyJet Swap Barter Alaxis Value proposition – categorization low high Influence of buyer POWER low high Influence of seller

  16. Illustration Value proposition Online sale

  17. Target customers Customer relationship Value proposition Target customer isA Segment Community setOf isA Criterion • Description • Reasoning • Categorization Who are our customers?

  18. Segment • 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 • Clear distinction • Limited set of competitors • Distinctive supply • Different purchase criteria • Barriers to deter new entrants Market Medium Home User SOHO Large Small Business organization Business

  19. Buy Union (mass) Market mix (informed) Barter New age (unselfish, elitist) Sale target (spendthrift) Community [Hagel, 1997] Group of people or entities • that share values or interests • and use the le Net regularly &at the same place One-to-tribemarketing transaction Business, trading, occasions, barter … Put pressure on sellers Meeting ofsellers/buyers interest Idea sharing, communication … fantasy Role games, fantasy world… relation Assistance (disease), sharing of experiences … Target customers

  20. Distribution channel Value proposition Distribution channel Target Customers isA Network Internet setOf isA Call center Offering Link isA • Description • Reasoning • Categorization by Actor How we reach our customers? Feel and serve them?

  21. 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. • Owned channels - direct (i.e. Web, phone, fax…) • Owned channels - indirect (i.e. brand shops) • Partner channels (intermediation i.e. retail, shops, ...) • More precisely it defines how a firm is “in touch” with its customers for a variety of tasks • Customer Buying Cycle (CBC) • Customer Service Life Cycle (CSLC) The purpose is to make the right quantities of the right products or services available at the right place, at the right time

  22. Illustration Distribution channel End users Market Medium Home User SOHO Large Small Business organization Business Procurement strategy Needs Preferences Buying behaviour Channels Value Added Corporate Traditionnal Retail Resellers Alternate Resellers Dealers Distribution strategy Selection Training Products Programs criteria Organization focus Software Periph. Network PC's

  23. Otopenia … 80% by Internet! Illustration Distribution channel – intermediaries [Klein, 2001] Airline Reservation S. Travel Agency

  24. Reading corners Coffee shops Sales person Promotion of authors and books Cash registry (cash/credit card) Return books Search function Customer review Critics Excerpt Order status Return books Transaction history Shopping cart checkout (Credit card) Banners to books etc. Expert commentariesRecommendation Specialized affiliate Websites Free online courses Courses based on books etc. Mass advertising Illustration Distribution channel – mix of links

  25. Customer Relationship Value proposition Relationship Target Customers isA Acquisition Retention setOf isA Add-on selling Offering mechanism isA isA • … Personalization Trust Security How we get and keep our customers?

  26. Customer equity • Customer Acquisition • How do we get customers? • Growing market share • Customer Retention • How do we keep customers? • Nurturing customer loyalty • Add-on selling • How do we get customers to buy more? • Enhancing Average Revenue Per User (ARPU) In some mobile firms,customer acquisition costshad reached almost a quarter of all operating expenses said Mr Zehle, CEO of

  27. PERSONALIZATION mechanisms Collaborative filtering Listen to the customer CRM Make recommendation Distribution Establish configuration 5 2 One-to-one Mass-customization Planing of production 3 Production (internal) 4a ERP Outsourcing (external) 4b SCM

  28. Certification Insurance Rating Expertise Escrow Risk management Reputation of actors Guarantee of quality Notary, payments Verification et authorization BRAND Notoriety … TRUST & LOYALTY mechanisms Contribute to the establishment of TRUST SECURITY Fear: financial losses QUALITY PRIVACY Fear: loss of intimacy Contribute INFO- MEDIARY COMMUNITY

  29. Revenues and pricing Value proposition Revenue Target Customers setOf isA Offering Pricing for • Description • Reasoning • Categorization Link What are our revenues? Our pricing?

  30. Revenue models – categorization combination REVENUE • Phone • registry • subscription • Usage • Time • Services one time sale registry recurrent Income of the subscription fees to become a member Paid by the buyer and/or the vendor subscription Income of the ad banners posted on the shopfront Paid by the vendor advertisement use transaction Income of online sales paid by the buyer commission Income, percentage of a transaction made by the settlement(affiliate program)

  31. Trends towards dynamic and online pricing [Klein, 2000] • Based on • catalog • negotiation between the seller and the buyer • auction • request for proposal (RFP) • « good bye to fixed pricing »? • Suppliers enjoy price differenciation in order to avoid comparison • Customers enjoy low price and gaming using comparison Yield Management • Allows to calculate in real time (online if on the Internet) • the best prices • for maximazing the profit generated by the sales • based on a forecasting model of sale behavior(for micro-segments)

  32. ColorMailer Website Printing infrastructure Packing staff upload images Print of images Delivery of items Marketing of product services Illustration Infrastructure operation Infrastructure operation Resources required Activities value for enables perform Partners

  33. Capabilities and resources Capability Value proposition setOf isA Resource • Description • Reasoning • Categorization by Actor What are our key competencies?

  34. Capabilities and resources [Wallin, 2000] • Capability • Repeatable patterns of action in the use of assets • Aptitude to exploit and coordinate resources • to create, produce, and/or offer products and services to a market • Resource • Assets that are available & useful • in detecting and responding to • market opportunities or threats DO OWN IBM

  35. = Core Benefits = Capabilities Illustration Capabilities [Rayport, 2001] Strong Distribution Network Online Gift Center Broad Assortment of Gifts High Quality of Flowers Popular Web Site Integrated Partner Offers Customer Service Widespread Easy Access Multiple Contact Points Technology Strong Brand Name Wide Reach to Customers

  36. Capabilities – categorization [Wallin, 2000] & Synocus • Business modeling • capability • Absorptive capacity • Conceptualizing • timing Related to management processes (decision) Related to business processes external internal resources customers

  37. Value configuration Capabilities Value configuration Value proposition isA Value chain Value shop setOf isA Value network Resource Activity Fit Flow Sharing • Description • Reasoning • Categorization by Actor How we operate and deliver?

  38. Illustration Value configuration [Revaz, 1995]

  39. Value chain, shop & network [Stabell, 1998] categorization

  40. Illustration Value chain, shop & network [Stabell, 1998] Value chain Value network Value shop

  41. Partnership Capability Partnership Value proposition isA Chain Market setOf isA Network Activity Agreement on • Description • Reasoning • Categorization by Actor How we collaborate?

  42. Bank payment product clearance Credit card sales Information systems coordination contents Shipping transport tracking order Distributor inventory supplier manufacturer distributor retailer buyer deliver deliver returns Customer buy content sale Affiliate sales order sales critics Author marketing Partnership – categorization [Malone, 1993] United Color of Benetton NETWORK MARKET low Coordination cost high low CHAIN Production cost high

  43. Costs Cost setOf isA Account • Description • Reasoning • Categorization What are our costs?

  44. Costs PROFIT = (P – VC).Q – FC P the unit price of a product VC the variable cost of a unit Q the number of products sold FC fixed costs

  45. e-Business Model Framework (eBMF) Infrastructure operation Customer relationship Partnership Actor Relationship Agreement Mechanism Product Innovation isa Capability Configuration Proposition Channel Customer isa Resource Activity Offering Link Criterion flow fit share Cost Profit Revenue Account Financial aspects Pricing

  46. Model & document (XML) DEFINE Product innovation Infrastructure operation Customer relationship Financial Aspects

  47. CUSTOMER Goals Measures & initiatives PROCESSES Goals Measures & initiatives INNOVATION FINANCE Goals Measures Goals Measures & initiatives & initiatives Balanced scorecard (BSC) & Intangible Assets Monitor MEASURE [Kaplan, 1992] How to improve our services and our quality? How do the customers perceive us? Innovation perspective Internal perspective Customer perspective Financial perspective In which process do we have to prove excellence? How do shareholder perceive us?

  48. System dynamics SIMULATE Product innovation Infrastructure operation Customer relationship Financial Aspects

  49. Questions http://inforge.unil.ch/yp/Talk/oois2002.htm

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