Business Model Seminar

Business models
Sujith Nair
Research Group on Competitive Strategy and Business Models
Department of Industrial Organization and Business Administration,
Technical University of Madrid
The business model
Who is the customer and what does the costumer value?

and
What is the underlying economic logic that explains how we can deliver value
to customers at an appropriate cost?
Effective business models operationalize good strategies -- turning position

and fit into wealth.
Business Model refers to the logic of the firm, the way it operates and how it
creates value for its stakeholders;
whereas
Strategy refers to the choice of business model through which the firm will
compete in the marketplace.
The business model- Significance for start-ups

Startups are not about executing plans where the product,
customers, channel are known.
Startups are in fact only temporary organizations, organized to
searchnot executefor a scalable and repeatable business model.
Instead of business plans the concentration should be on customer
development, innovative and agile development and business
models should be the focus.
parts of the business model
Business models are made of concrete choices and the consequences of these
choices .
Choices (compensation practices, procurement contracts, location of facilities,
assets employed, extent of vertical integration, and sales and marketing
initiatives)
Different designs have different specific logics of operation and create
different value for their stakeholders.
Three types of choices: policies, assets and governance structures.
Policy choices refer to courses of action that the firm adopts for all aspects of
its operation.
Asset choices refer to decisions about tangible resources.
Governance choices refer to the structure of contractual arrangements that
confer decision rights over policies or assets.
Some distinctive features of Ryanairs business model

Choice
Consequence
Secondary airports
Low airport fees
Lowest ticket prices
Large volume
Low commissions to travel agents
Low cost
Standardized fleet of 737s
Bargaining power with suppliers
Single-class
Economies of scale
High-powered incentives
Attracts combative team
No meals
Faster turnaround
Nothing free
Additional revenue
Spartan headquarters
Low fixed cost
No unions
Flexibility in rostering staff
Ryanair simplified business model representation
The Sixteen Business Model Archetypes
Malone TW, Weill P, Lai R, D'Urso VT, Herman G, Apel TG, Woerner S. 2006. Do Some Business Models Perform Better than
Others? A Study of the 1000 Largest US Firms, MIT Sloan School Working Paper 4615-06. MIT SeeIt Project: Cambridge, MA
New services that also create new business models/value
Industry sector
New service/new business model/value
Ebay
On-line auction
A new way of buying and selling through a

community of individual users
Ryanair
Airline
A new way of consuming air-travel with no frills

service and emphasis on economy.
Amazon
Retailer
New way to buy goods- on-line retailer
Napster; iTunes
Music retailer
New way to buy and download music.
Google
Internet search
engine
A fast way to search for information on the internet
Partygaming
On-line gambling
Gambling and gaming from the comfort of your

own home
Myspace/
Facebook
Social networking
A community of users on-line who can chat and

share music, images, news from their own home.
You-Tube
On-line video and

film archive
A community of users sharing home made video

clips plus recorded favourite clips from movies.
Company
The building blocks of a business model

(Osterwalder and Pigneur [2004])
CUSTOMER SEGMENTS
which customers and users are you serving?

which jobs do they really want to get done?
VALUE PROPOSITIONS
what are you offering them? what is that

getting done for them? do they care?
CHANNELS
how does each customer segment want to be reached?

through which interaction points?
CUSTOMER RELATIONSHIPS
what relationships are you establishing with each segment?

personal? automated? acquisitive? retentive?
REVENUE STREAMS
what are customers really willing to pay for? how?

are you generating transactional or recurring revenues?
KEY RESOURCES
which resources underpin your business model? which

assets are essential?
KEY ACTIVITIES
which activities do you need to perform well in your

business model? what is crucial?
16
KEY PARTNERS
which partners and suppliers leverage your model?

who do you need to rely on?
COST STRUCTURE
what is the resulting cost structure?

which key elements drive your costs?
key
activities
value
proposition
customer
relationships
key
partners
customer
segments
cost
structure
revenue
streams
key
resources
channels
19
Activities
Form groups of 4.
Identify the business model of two firms from the same
industry.
Compare the business models critically with the
Osterwalder model.
Make a presentation of 15 minutes. (8 Oct, 10 Oct)

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Business models

The business model

Who is the customer and what does the costumer value?

Effective business models operationalize good strategies -- turning position

The business model- Significance for start-ups

parts of the business model

Three types of choices: policies, assets and governance structures.

Some distinctive features of Ryanairs business model

Low airport fees

Lowest ticket prices

Low commissions to travel agents

Standardized fleet of 737s

Bargaining power with suppliers

Attracts combative team

Low fixed cost

Flexibility in rostering staff

Ryanair simplified business model representation

The Sixteen Business Model Archetypes

New services that also create new business models/value

New service/new business model/value

A new way of buying and selling through a

A new way of consuming air-travel with no frills

New way to buy goods- on-line retailer

New way to buy and download music.

A fast way to search for information on the internet

Gambling and gaming from the comfort of your

A community of users on-line who can chat and

On-line video and

A community of users sharing home made video

The building blocks of a business model

which customers and users are you serving?

what are you offering them? what is that

how does each customer segment want to be reached?

what relationships are you establishing with each segment?

what are customers really willing to pay for? how?

which resources underpin your business model? which

which activities do you need to perform well in your

which partners and suppliers leverage your model?

what is the resulting cost structure?

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