Business Models, Business Reality

Vision, Viability and Value

Exercise: Mental Math In your group, outline what you

might do on your project if you had funding in the following amounts:15K150K1.5M

What would you do with it?How long would it last?

Appropriateness MatrixJournal of Electronic Publishing, University of MichiganMichael JensenJensen's Matrix (September 1998)

“Dealing with the Loss of Limits”

• How do publishers choose what is appropriate to do electronically?

Jensen

• “Over the last several hundred years, physical containers defined the dissemination medium and thus defined the cost recovery models of every textual publishing enterprise.”

• We simply have more choices.

What Choices Are Appropriate?

• Which Digital Format?• Page image• Plain HTML• Enhanced HTML (javascript, etc)• XML

• What is the purpose of Publishing?• Spread content• Recover costs• Impress Authors

• What are the Content Demands?• Deeply Read Work• Browser Forage• Reference Work

• What kind of Personnel?• Single specialists• Little bit of everyone• Outsourced

From Jensen’s Matrix

Alsop on Content Content is queen, not king.

“Technology is king. The one thing that VC depend on for evaluating new companies is intellectual property….

“Virtual magazines, or content businesses on the the Internet, use technology as a platform. If they close in on something proprietary, they come nearer to justifying a vc’s investment of risk capital.”

Stewart Alsop, “An Old Fogy Doesn’t Get Web Content”, Fortune, Nov. 6, 2000.

Can you quantify value? Can you find ways to measure the

value that you will produce?

Strategic Context

A Technology Plan• How effectively do you tap new or underused

capabilities of technologies?• Is it proven or experimental?• Is your use unique?• Is it truly an advantage to be first?

• Do you have the expertise required to develop systems?

Unique InformationContent or Information

• What information will you develop? • How valuable is the information?

• Does it help people make financial decisions?• How will you or anyone develop the information?• What sources are there for the information?

Meeting Needs of Users

• Who values this product? How much?• What is most important to them?• What kinds of experience does the user have?• What kind of tasks do they want to perform?

Business Organization How do the goals of the project fit with the

mission of the organization? How can you get the support you need? What strengths of the organization can you

leverage?

Making a Business Case What are you going to do? Why is it worth doing? What will it cost?

Expenses What is it worth?

Revenue Projection How long will it take you to know if you

will succeed? When does revenue exceed expenses?

Definition: Business Model “to win a sustainable advantage in

attracting, developing and holding customers”-- Dan Beam

Business Model

Distinguish business model from: Revenue model Funding model Organizational model

Indirect Revenue Models Advertising

Niche vs General Business vs. Consumer Local vs. National

E-commerce Take percentage of sales for delivering

qualified customers. Support

Provide more cost-effective means of delivering traditional business service.

Direct Models Direct Pay/Service

Subscription Per piece

E-commerce User buys directly from you.

Non-commercial Models

Will communities support online publications or services that serve them?

Will volunteers be successful in running or maintaining a Web site?

Will government funding or community funding support services that cannot or should not be commercialized?

Non-commercial Models

Public Radio/TV Will communities support online

publications or services that serve them? Will government funding or community

funding support services that cannot or should not be commercialized?

Non-profit organizations Grants

Funding Models Self-funded

Use cash from business to fund growth. Advantages: retain control; gradual, adaptive

growth. Disadvantages: under-capitalized means fewer

resources; might miss window of opportunity. Sell all or part of company and give up equity.

Company’s future depends on successful IPO or acquisition (exit strategy).

Advantage: more resources, rapid growth, upside. Disadvantages: loss of control; grow too fast; short-

term.

What Kind of Organization Is Required? What size and structure is appropriate for

the idea? What existing assets can you leverage? Startups vs. traditional businesses.

Focus & Commitment Expertise Resources Environment

Your business model integrates a revenue model, a funding model and an organization model.

Funding Criteria Management Team The Idea itself Customers Size of the OpportunityWhat We Expect: Sequoia Capital

P2P Example

Larry Cheng of Battery Ventures: P2P space has no shortage of great

ideas but there is a shortage of quality management teams and ambiguity around business models.

Over 95% of the companies will fail.

How Fast to Grow?

To be the dominant player in an industry, you have to be growing at least as fast as the industry itself.

O’Reilly’s Business Model O’Reilly wants to move from being a

book publisher to an integrated media company. Milestones Aspirational Model

• What We Do• How We Do It• Core Competencies• Vision

O’Reilly Strategy Map

Part of annual planning cycle Means (External marketplace

objectives) Maneuvers (Internal organizational

objectives)

Working within the Organization Solve a critical problem or create a

new opportunity for a company. Does it fit with strategy and business

model?

SWOT Analysis Strengths Weaknesses Opportunities Threats

Star Decision Model for New Businesses

Commercialize

Spin-off

Close

Make it a function

Business Plan Market Product Concept Opportunity (How Product fits in Market) Customers Management Team Competition SWOT Financial Plan

Examples Internet Public Library GNN Likeminds

Internet Public Library The Quest for a

Sustainable ModelInternet Public Library:

http://www.ipl.org/Analysis:

The Internet Public Library by Lorrie LeJeune in Journal of Electronic Publishing

IPL Mission Statement

IPL Timeline: Start

January 5, 1995 Project started at University of

Michigan School of Information and Library Studies as part of a graduate seminar.

Started by Joseph Janes, Associate Professor and 35 students in his class.

IPL Launch: March 1995 IPL Site opened (about 70 days from

project start to launch) University provides server (Sparc

20) and an Internet connection Good traffic and publicity.

IPL Summer 1995 Receives $150K Grant: "We are pleased

now to be supported by grants from the School of Information via its grant from the W. K. Kellogg Foundation, and the gifts of the Friends of the Library"

Friends Sponsorship program Individual -- $25-$100 to fund a review or

a page. Corporate -- Sponsor development of an

area

IPL: 1996 In January, determines that School of Information

will not continue to support it. Develops business plan to pursue additional funding. Establishes position to do outreach.

In June, IPL awarded $200K from Andrew W. Mellon Foundation -- Press Release. This grant will "Fund the development of several projects aimed at ensuring the long-term viability of the Library by giving it a steady and sustainable revenue stream."

Launchses "WebINK: Internet Newsletter for Kids“ and POTUS – U.S. Presidents

IPL: 1997

Summer, 1997 Funds are beginning to run out. Staff

members leave, anticipating that the project will be scaled back.

August 1997 Supplemental funding supports 2

administrative staff with funding through April 1998.

1998: Third Anniversary IPL has served more than 5-7 million

people in 2-3 years with a staff of six and a budget of less than $450,000.

"Where we are now is extraordinary, for a class project with no money, not even a server when we started," said IPL Director Joseph Janes.

Joe Janes:

“People think the public library is free, because they don't have to hand over any money whenever they use its services. But it didn't used to be that way; public libraries were actually subscription libraries. People paid a set fee for each service and that went on for several hundred years. In the late 1800s Andrew Carnegie stepped in, donated a lot of money for buildings, and got the government to support these new public libraries with tax revenues. And this system has been in place -- virtually unchanged -- since the 1920s. So now what happens is you have all these librarians saying that everything is free.”

Views of IPL

Lejeune: The IPL made a tactical error in embracing the public-library model.

Schelle Simcox, hired to do business development left in July 1997: "If you want to be an information provider you need to have someone on your team with the ability to bring in a steady source of income. That person should be a marketer who can sell your ideas to an audience that isn't quite ready for them; someone with the ability to pull people together, get them excited about ideas that are unproven, and convince them to offer financial support."

GNN: 1993-1995

First Commercial Web Publishing VentureFirst PortalFirst Site to Sell Advertising

Developing GNN In Feb. 1993, formed four-person

"skunkworks" team and began planning for new product based on the demo.

Internally, we had to advocate for the project and establish a separate identity and eventually a separate team and budget for development.

GNN: 1993

GNN: Launch of a Portal Launched at InterOp in August. Announced that it would be

supported by advertising. Consisted of a directory of links: The

Whole Internet Catalog. Plus special-interest magazine-like

sections. Difficult to sell advertising.

Internet in a Box Product developed by Spry and co-

produced with O’Reilly Included Web browser that pointed

to GNN. Announced at first Internet World,

December 1993.

GNN: 1994 Obtain a license to publish NCSA's

What's New page, the most heavily trafficked site on the Net.

We establish a publishing process for maintaining the resource.

Advertisers begin knocking on our door.

GNN Staffing: 1994

Team of Twelve Project Manager Sales and Marketing Graphic Designer Editorial and Production Technical Director

GNN: 1995 GNN is perceived to be a "native"

Internet brand. In spring, AOL offers to buy GNN. We

believe it's necessary to scale up GNN. Staff is up to 23.

Sale for $14 million in stock occurs in summer.

First sale of an Internet intellectual property.

AOL and GNN AOL repositions GNN as an Internet

service provider. Ignores content and directory services.

December 1996 AOL closes down GNN.

Three GNN Designs

Click here

Web Review

1995 to Present Launched in

August as general Web magazine.

Sample article. Additional cover.

Web Review We were stretching the magazine

metaphor as far as we could go. In our first half-year, we had the resources to build fairly complex story layouts. Covers

Digital Academy, October 13, 1995 Mozilla, Dec. 8, 1995 Webula, October 27, 1995 Web95, December 22, 1995

Web Review Business Advertising model Was to have been linked up to AOL and

GNN and they were to sell advertising. We had difficulty as a general magazine

and began to target Web developers. After about a year, we announced a

decision to close the magazine.

New Partnership Struck a deal with Miller Freeman, a

SF-based, diversified publisher to jointly produce Web Review.

We’d produce the editorial product and they’d handle the sales and marketing.

WR complemented a Web conference and a Web magazine.

Web Review Re-launched Resume publishing in Fall of 1996

focusing on Web designers and developers.

New target audience plus maturity of Web products and advertising make the publication reasonably successful.

Web Review 1999 About 450,000 pages views a week. About $100K/month advertising. About 25k email “subscribers.”

MFI Acquires Web Review MFI (now CMP) buys Web Review for

$3 million. Recently moved to different group.

Likeminds Collaborative filtering applied to

movies. Patented technology applied first on

kiosks in video stores. Songline prototyped Web demo Spun out Likeminds in 1997

Acquired by Andromedia; Andromedia acquired by Macromedia.

Publications Closing Upside Closes (Sept, 2001) Expedia Travels to Close (Oct. 2001) Feed and Suck Fold (June, 2001)

Advertising revenue down; investment not available.