A Business Model is…, Simply a description or an

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  • 1.
  • 2.A Business Model is… Simply a description or an account or a conceptual plan… …of how a business will make a profit
  • 3.Some Business Model Simple purchase Subscription Cable TV, Cellular phone plans, The Economist, The F.T. Pay-as-you-go Cellular phones, utilities Razorblade Razors, inkjet printers, video games Fremium VMware, Sketchup, New Yorker, Boston Globe Wholesale Ad-based Spotify… Agency IBM hardware Long tail Amazon Multi-level marketing LifeVantage Penny auction Quibids Bundling Microsoft, IBM, AT&T Comcast,
  • 4.Razor Blade Model Sell razors ‘cheaply’ (below cost) Create a ‘locked in’ customer base Sell blades well above cost Same model used by ink jet printer firms Keurig coffee maker Video game makers Apple iTunes
  • 5.Long-tail Business Model Used by Amazon… Vast potential customer base Efficient fulfillment High volume bargaining power, low delivery and product costs Exploiting the “long tail” ‘go-to’ site -> customer base Virtuous circle
  • 6.Amazon’s Evolving Business Model Diversification into related products Broadening into a generalized marketplace Making a market Providing a platform for small sellers Fire Phone Amazon Prime Development of core competence in Distribution and fulfillment IT Spillover – Amazon Web Services
  • 7.Penny Auction Auctions that don’t end Very small price to bid Revenue to ‘subsidize’ low purchase price from multiple non-winning bidders Potentially low purchase price attracts lots of bidders
  • 8.Defense Contracting Bid for defense contract Government finds prototype development Use government R&D funding to develop new technology Deploy new technology in other (civilian) business operations
  • 9.Multi-level marketing Every member of the marketing sales force Buys product from the company Keeps any profit from sales of product Recruits others Gets a proportion of all revenues of people they recruit Sometimes referred to as pyramid marketing
  • 10.Bait and Switch Offer small numbers of high value at low price This will be sold at a loss Once potential purchaser is in the store offer them something else This will be sold at a profit to cover the ‘loss-leader’
  • 11.Price variability Sell some big items at cost Sell many smaller items at sizable markup OR Advertise / market to create impression of discounter Randomly increase prices on certain goods
  • 12.Google’s Business Model Initially just another search engine, (albeit a very good one). Gradually beat out earlier rivals (Yahoo, Lycos, Excite, Infoseek, AltaVistsa, and AskJeeves) How to make money from search? Subscription, user fee? Search Top billing Result Click Through
  • 13.Companies without viable Business Models Yahoo, Lycos, Altavista, AskJeeves, Twitter WebVan Pets.com USX, Bethlehem Steel Bear Sterns, Lehman Brothers, Merrill Lynch IBM? Microsoft? ...
  • 14.The Internet Lots of new business models have been made possible by the Internet Amazon – a refinement of a old model Google – a completely new business model Top billing Click through Quibids.com Charging loosing bidders (penny auctions) edX (MOOCs)
  • 15.Key elements of a business model What’s the product or service? Who will pay for it, why, and how much (the value proposition)? How much it costs to make or deliver How much is left (profit) Who are partners, suppliers, competitors, complementors Structure and processes Marketing Distribution Operating / manufacturing Supply chain Finance (sources of funds, returns to investors) Other Stakeholders
  • 16.A Useful Template
  • 17. Retail Client (Level - Pilot) dunnhumby (Vendor) Business Model – Example Miller / Okumoto, Inc. Client Interface Team Who are the members? What skills should they possess? What level of experience? Solutions Team Is this a dedicated group? What skills should they possess? Outside Partners 3rd Party data sources? 3rd Party software products? Client / Vendor Value Proposition What is Client economic benefit? What is Client strategic benefit? What is Vendor benefit? Vendor Interface Team Are all levels represented? Contact points, times, & events? Expectations understood? Level of satisfaction understood? Vendor Supporters Internal support points covered? Inside “sales team” Unofficial communication channel Cost Elements Client Team (labor + Overhead costs) Solutions Team (labor + Overhead costs) Outside partner(s) cost Product cost Product development cost Revenue Streams Data base access fee? Incremental Inquiry fee? Aid in acquiring Mfg fees Contribution Margin: 1. Present in a P&L format 2. Contribution rate Objective: e.g. (break-even / slight profit / slight loss) ? Key Processes – Activities Account status reporting Detailed SOW Development of Mfg relationship Relationship at every Client level? Vertical development process Other primary processes?
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