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September 2001 Chapter 5: Business Models1 Chapter 5: Business models Questions answered in this chapter: What is a business model? Do firms compete on value propositions or value clusters? How does the firm develop an online offering? What is a successful, unique resource system? What are the financial models available to firms? What business classification schemes seem most appropriate for the new economy?

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September 2001 Chapter 5: Business Models3 Do Firms Compete on value Propositions or Value Clusters?

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September 2001 Chapter 5: Business Models4 Do Firms Compete on value Propositions or Value Clusters? (continued) Choice of Segments Market size and growth rates Unmet or insufficiently met customer needs Week or nonexistent competitors Choice of Focal Customer Benefits Single-benefit approach Multiple-benefit approach Choice of Unique and Differentiating Capabilities Tangible assets Intangible assets Capabilities of the organization

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September 2001 Chapter 5: Business Models6 Quality of a value proposition or cluster Customer Criteria. Do target customers understand the proposition or cluster? Is it relevant to their needs? Is it perceived as unique or indistinguishable from other propositions or clusters? Company Criteria. Will the company rally around the proposition or cluster? Does the company have the resources or capabilities to own this cluster? Competitive Criteria. Are other competitors trying to hold a similar proposition or cluster? Can current or future competitors match this cluster?

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September 2001 Chapter 5: Business Models7 How Does a Firm Develop an Online Offering?

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September 2001 Chapter 5: Business Models9 What Is a Successful Resource System? Modifications to the activity system logic for the online marketplace Shift from physical world to virtual and back to physical world Shift from a supply-side focus to a demand-side focus Shift from activities to capabilities Shift from single to multifirm systems

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September 2001 Chapter 5: Business Models10 Specifying a Resource System Step 1: Identify core benefits in the value cluster Step 2: Identify capabilities that relate to each benefit Step 3: Link resources to each capabilities Step 4: Identify to what degree the firm can deliver each capability Step 5: Identify partners who can complete capabilities

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September 2001 Chapter 5: Business Models12 Criteria to Assess the Quality of a Resource System Uniqueness of the system Links between capabilities and benefits Links among capabilities in the system Links among resources Links between virtual world and physical world business systems Sustainable advantage

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September 2001 Chapter 5: Business Models14 The Role of Partnerships Portal agreements (AOL, Yahoo, MSN, etc.) Anchor tenant agreements (exclusive partnerships) Promotion agreements (cross industry promotions such as frequent-flier miles, telephone discount rates, gift certificates, etc.)

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September 2001 Chapter 5: Business Models15 What Are the Financial Models Available to Firms?

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September 2001 Chapter 5: Business Models16 Alternative Shareholder Value Models Metamarket switchboard Auctions Category switchboard Best information Widest assortment Lowest prices Broadest user network Best experience Most personalized

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September 2001 Chapter 5: Business Models20 Business Classification Schemes Porter generic strategy model differentiation strategy cost strategy niche strategy Sawhney and Kaplan model business-to-customer hubs business-to-business hubs (vertical and functional hubs) Rayport, Jaworski, and Siegal model Forward-integrated producers Supply-side aggregators Backward-integrated user Demand-side aggregators

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September 2001 Chapter 5: Business Models24 Marketwatch.com Business Model Value Cluster Target segments (savvy investors, seekers, dabblers) Key benefits (up-to-the-minute information; original, in-depth analysis, personal-finance tools, multiple points of access) Supportive rationale (experienced editorial staff, multiple forms of media, CBS News and Financial Times brand names)

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September 2001 Chapter 5: Business Models25 Marketwatch.com Business Model (continued) Marketspace Offering Scope: The best provider of financial information and analysis across a number of media Media: Online, television, radio, wireless devices

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September 2001 Chapter 5: Business Models27 Marketwatch.com Business Model (continued) Resource System CBS News Financial Times Marketwatch.com BigCharts.com Content partners (Hoovers, Zacks, INVESTools, etc.) Distribution partners (Yahoo, AOL, Quicken, etc.)

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September 2001 Chapter 5: Business Models30 Marketwatch.com Business Model (continued) Revenue model Advertising revenue (72% in 1999) Licensing revenue (21% in 1999) Other revenue, subscription, etc. (7% in 1999) Value model (best information) Growth model Advanced portfolio-tracking tools International markets Services to address expanded trading hours Expand reach to wireless devices Expand TV and radio shows to more stations

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