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
Cable TV, Cellular phone plans, The Economist, The F.T.
Cellular phones, utilities
Razors, inkjet printers, video games
VMware, Sketchup, New Yorker, Boston Globe
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
5.Long-tail Business Model
Used by Amazon…
Vast potential customer base
bargaining power, low delivery and product costs
Exploiting the “long tail”
‘go-to’ site -> customer base
6.Amazon’s Evolving Business Model
Diversification into related products
Broadening into a generalized marketplace
Making a market
Providing a platform for small sellers
Development of core competence in
Distribution and fulfillment
Spillover – Amazon Web Services
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
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
Every member of the marketing sales force
Buys product from the company
Keeps any profit from sales of product
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’
Sell some big items at cost
Sell many smaller items at sizable markup
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
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
Charging loosing bidders (penny auctions)
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
Operating / manufacturing
Finance (sources of funds, returns to investors)
16.A Useful Template
(Level - Pilot)
Business Model – Example
Miller / Okumoto, Inc.
Client Interface Team
Who are the members?
What skills should they possess?
What level of experience?
Is this a dedicated group?
What skills should they possess?
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?
Level of satisfaction understood?
Internal support points covered?
Inside “sales team”
Unofficial communication channel
Client Team (labor + Overhead costs)
Solutions Team (labor + Overhead costs)
Outside partner(s) cost
Product development cost
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
Development of Mfg relationship
Relationship at every Client level?
Vertical development process
Other primary processes?