Business models

How will the business win?

Learning objectives
1. What is an online business model?
2. What are the components of a value
proposition/cluster?
3. What are the approaches to developing an
online offering?
4. What are the steps necessary to develop a
resource system?
5. What are the different revenue models
available to firms?
6. What are some business models that online
companies follow?

Learning objectives
1. What is an online business model?
2. What are the components of a value
proposition/cluster?
3. What are the approaches to developing an
online offering?
4. What are the steps necessary to develop a
resource system?
5. What are the different revenue models
available to firms?
6. What are some business models that online
companies follow?

Online business model
Value Cluster
Online Offering
Resource System
Revenue Model
Specify the value proposition or
the value cluster for the business
Articulate the online product,
service or information offering
Define how the company needs to
align its resources to deliver the
value proposition
Define and select the most
appropriate revenue model to
pursue
Four components of an online business model:
Learning objectives
1. What is an online business model?
2. What are the components of a value
proposition/cluster?
3. What are the approaches to developing an
online offering?
4. What are the steps necessary to develop a
resource system?
5. What are the different revenue models
available to firms?
6. What are some business models that online
companies follow?

Value propositions/clusters
Questions to ask:
Which target segments should the
company focus on?
What is the combination of customer
benefits that is offered?
What makes the firm and its partners
better positioned to deliver the offering
than anybody else?
Value clusters = multiple value propositions
Value propositions/clusters
Segment-choice decision factors:
1. Market attractiveness
Significant market size & growth rates
Unmet customer needs
Weak/nonexistent competitors
2. Competing capability
Matching business strengths with segment
benefits
Value propositions/clusters
Customer benefits decision factors:
1. Benefit offerings
Price
Product differentiation
Customer support
On-time delivery
2. Competing capability
Matching benefit offerings with customer needs
Value propositions/clusters
Target
Segments
The special occasion
segment
Key Benefits
Offered
Unique
Capabilities
Value
Proposition
+
+
Online experience
Unique, broad product
line of complementary
gifts
PC Flowers
& Gift
Fresh flowers
Complementary gifts
Low prices
PC Flowers & Gift serves
the special occasion
segment by providing fresh
flowers and unique
complementary gifts
FTD.com
Mid- to high-end
market
Strong brand name
Market
Communication
Supplier network
Easy delivery of
flowers
FTD.com provides the
mid- to high-end market
with the easiest way to
send flowers thanks to its
extended network of
suppliers
Learning objectives
1. What is an online business model?
2. What are the components of a value
proposition/cluster?
3. What are the approaches to developing an
online offering?
4. What are the steps necessary to develop a
resource system?
5. What are the different revenue models
available to firms?
6. What are some business models that online
companies follow?

Online offering
3 steps:
1. identify the scope of the offering
2. identify the customer decision process
3. map the offering to the customer
decision process

Online offering
Step 1: Identify the scope of the offering: the number of categories
of products and services offered on the site
Secondspin.com (used CDs)

RitzCamera.com

Continuum of Scope
Category-Specific Dominance
Focus on one product category
Cross-Category Dominance
Focus on a large number of categories
Dealtime (electronics and other goods)

Amazon

Online offering
Step 2: Identify the customer decision process
Online offering
Step 3: Map the offering to the customer decision process
Online offering
An egg diagram for 1-800-flowers.com
Learning objectives
1. What is an online business model?
2. What are the components of a value
proposition/cluster?
3. What are the approaches to developing an
online offering?
4. What are the steps necessary to develop a
resource system?
5. What are the different revenue models
available to firms?
6. What are some business models that online
companies follow?

Resource system
1. Identify core benefits in the value
cluster
2. Identify resources that relate to each
benefit
3. Identify to what degree the firm can
deliver each benefit
4. Identify partners who can complete
resources

Resource system
Broad
Assortment
of Gifts
Customer
Service
Widespread
, Easy
Access
High
Quality of
Flowers
Step 1: Identify core benefits in the value cluster
The value proposition of 1-800-Flowers.com is to serve the mid- to high-end market with a broad gift
assortment, fresh flowers, and easy access because of its strong distribution network, product and
media partnerships and multiple contact points.
Resource system
Broad
Assortment
of Gifts
Customer
Service
Widespread,
Easy Access
High Quality
of Flowers
Wide Reach
to Customers
Multiple
Contact
Points
Popular
Website
Strong Brand
Name
Step 2: Identify resources that relate to each benefit
For 1-800-Flowers.com, the benefit widespread, easy access is linked to four capabilities: strong brand
name, wide reach to customers, multiple points of contacts and a popular website.
Resource system
Online Gift
Center
Integrated
Partner Offers
Broad
Assortment
of Gifts
Customer
Service
Wide Reach to
Customers
Widespread
, Easy
Access
Multiple Contact
Points
Popular Website
High
Quality of
Flowers
Technology
Strong Brand
Name
Core
Benefits
Strong
Distribution
Network
Step 2: Identify resources that relate to each benefit
Resource system
Wide Reach
to Customers
Multiple
Contact
Points
Popular
Website
Strong Brand
Name
Telephone
Online
Franchis
e Stores
Catalog
3,000 Affiliates
Customer
Service
Widespread,
Easy Access
Broad
Assortment
of Gifts
High Quality
of Flowers
Step 3: Identify to what degree the firm can deliver each benefit
For 1-800-Flowers.com, both product and media partnerships are required to make the system operate
effectively.
Resource system
Wide Reach
to Customers
Multiple
Contact
Points
Popular
Website
Strong Brand
Name
AOL
Yahoo
Broad
Assortment
of Gifts
Customer
Service
Widespread,
Easy Access
High Quality
of Flowers
Step 4: Identify partners who can complete resources
For 1-800-Flowers.com, Lenox, Sharper Image, Blue Mountain cards, San Francisco Music Box
Company are its product partners; Online sites such AOL, Yahoo are its media partners; telephone
representatives, franchise stores, and catalog are its offline contact points partners.
CSR
Catalog
Franchise
Resource system
Online partnerships
Portals: brand exposure, e.g., 1-800-Flowers.com with
AOL
Anchor-tenant: sole provider of a specific
product/service for another retail site, e.g.,
Proflowrs.com with Amazon.com
Promotion: cross-promotions or promoter-client, e.g.,
1-800-Flowers.com with Barnes & Noble.com; 1-800-
Flowers.com with American & Delta airlines

Resource system
Assess the quality of a resource system:
1. System uniqueness: how does the companys
resource system differ from that of its competitors?
2. Resources-benefits links: how strong is the link?
3. Resources-system link: how well do the resources
complement and support one another?
4. Online-offline link: how well does the online resource
system complement and support its offline system?
5. Resource sustainability: is the resource system
difficult to replicate?


Learning objectives
1. What is an online business model?
2. What are the components of a value
proposition/cluster?
3. What are the approaches to developing an
online offering?
4. What are the steps necessary to develop a
resource system?
5. What are the different revenue models
available to firms?
6. What are some business models that online
companies follow?

Revenue models
Advertising
Advertising revenues can be generated through the selling of ads, site sponsorships, event underwriting, etc.
(e.g., Yahoo, AOL, Business2.com)
Product, Service, Information
Revenues can be generated from the sales of goods and services (e.g., Amazon, CDNow, Buy.com)
Transaction
Revenues can be accrued from charging a fee or taking a portion of the transaction sum for facilitating a
customer-seller transaction (e.g., Schwab, eBay)
Subscription
Website can gain revenues by offering subscription services for information (e.g., FT.com, NYTimes.com)
License Fees
Fees generated from the licensing of content (e.g., software companies).
5 sources of revenue:
Learning objectives
1. What is an online business model?
2. What are the components of a value
proposition/cluster?
3. What are the approaches to developing an
online offering?
4. What are the steps necessary to develop a
resource system?
5. What are the different revenue models
available to firms?
6. What are some business models that online
companies follow?

Alternative online business models
Business
Models
Metamarkets
Switchboard
Auction
Freshest
Information
Highest Quality
Widest
Assortment
Lowest Prices
Most
Personalized
Core
Benefits and
Proposition
Single point of
access for all
needs
Depth and
breadth of
product as-
sortment
Number of ac-
tive buyers
Timely and ac-
curate informa-
tion
High-quality
products with
exclusivity
Broadest in-
ventory possi-
ble
Can lead to
best prices
Lowest prices Unique prod-
uct, service, or
experience

Online
Offering
Either cate-
gory specific
or across
categories
Usually a large
number of
products
Broad or tar-
geted audi-
ence

Concentrates
on smaller
offerings for
smaller mar-
kets
Can be either
category killer
in one category
or widest as-
sortment
across man
categories
Niche cate-
gory or across
wide variety of
categories
Geared toward
a single buyer
Key
Resources
Large, active
customer base
Commitment
to building
Large base of
buyers and
sellers
Good, reliable
technology
Strong brand
name
Hiring best
personnel

Ability to
source
products
Outstanding
customer ser-
vice
Strong brand
Significant
brand name
Strong logistics
to manage
brand name
Ability to build
strong back-
office systems
and leverage
scale econo-
mies
Ability to
generate ex-
ceptional cus-
tomer knowl-
edge
Revenue
Model
Transaction
fees
Product sales
Advertising
Affiliate deals
Transaction
fees
Product and
service sales
Subscription
Advertising
Product,
service, and
information
sales
Advertising
Product sales Product sales Product sales
Subscriptions
Examples
BabyCen-
ter.com
Verticalnet
CarPoint.com
Fashion-
Mall.com
eBay
Amazon Auc-
tions
Covisint
NYTimes.com
Salon.com
Business 2.0
Zagat.com
FAO.com
Ashford.com
Amazon.com
CDNow
Sephora.com
EBags.com
Lowest-
fare.com
Allbooksfor-
less.com
Outpost.com
Reflect.com
Sevency-
cles.com
eDiets.com

Marketwatch.com
Business model #1: value proposition
Mission statement:
Our goal is to create the preeminent brand for real-time business
news and financial information on the Web and other media.
Target segments:
Savvy investors, seekers, dabblers
Key benefits:
Up-to-the-minute information; Original, in-depth, credible analysis;
Personal-finance tools; Multiple points of access
Rationale:
Experienced editorial staff; Technological infrastructure; Credibility
through CBS News association

Marketwatch.com
Business
model #2:
online offering
Learn
Getting Started
Investors Primer
IPO Basics
Financial Term Glossary
Invest
Sponsorships by Online
Brokerages
Datek Online
Fidelity Investments
National Discount Brokers
Ameritrade
Cybertrader
Scottrade
Broker Decision Center
Planning Tools
Shareholder
Payment Calculator
Home Price Check
Best Credit Card Rates
Insurance QuickQuote
Third-Party Sources
Market Guide
Hoovers Online
Multex
Annual Reports Club
INVESTools
Over 250,000 Investment
Research Reports
Community
Private e-mail
People Watch
Hot Discussions
Occasional Polls

US Markets
Market Monitor
Major Indexes
Dollar Volume
Leaders
Commentary
Thom Calandras
Stockwatch
Bambi Franciscos Net
Sense
Bezderick on Bonds
(Many other commentary
columns)
eNewsletters
Online
News Watch
E-mail Alerts
Real-time Headlines
Hotstock Tracker
Marketwatch Live
eSignal
Radio
Contribution to
Westwood One
Global Markets
Key Rate
Snapshot
International
Indexes
Non-Us Stocks

Track Investments
Portfolio View
Portfolio Analyzer
Portfolio Allocation
Portfolio Tracker
Breaking News
Market Figures
Personal Finance Process
Learn
About
Personal
Finance
Plan
Investment
Strategy
Stay Updated on
the Latest News
and Figures
Develop
Insight
Invest
Track
Investments
Television
CBS MarketWatch
Weekend
Contributions To:
CBS Early Show
CBS Evening News
CBS NewsPath

Develop Insight
Futures and Options
Futures Contracts
After-Hours
Futures
Bonds
Bellwether Bonds
Report
Funds
Fund Profile
Fund Charts
Stocks
Interactive
Charting
Historical Charts

Marketwatch.com
Business model #3: resource system
Marketwatch.com
Business model #3: resource system (Partners)
Marketwatch.com
Business model #4: revenue model