Friday, September 28, 2007

Business model dynamics

In an uncertain and turbulent environment companies often have to change their business model. This is in particular the case for companies where information and communication technology (ICT) is an important driver for change. For example, with the rise of e-commerce Amazon starting developing its business model. What originally looked like an online bookshop has developed in a broad commercial and technological service provider. Nowadays, we see new Web companies like Facebook developing business models for social networking. See this article for an interesting discussion on the Facebook economy.

Most literature on business models takes a snapshot approach. It describes how a specific business model at a certain moment in time can be designed and analyzed. It does not, however, discuss the dynamics of business models. One of the exceptions is the work of Harry Bouwman and Mark de Reuver from the Delft University of Technology (see, for example, this paper).

The dynamics of business models raises the question what kind of changes are possible. To address this question I will differentiate between, on the one hand, changes of the business model and, on the other hand, changes in the business model. I will also try to label different kinds of changes, such as business model innovation, business model development, and business model life-cycle.

With changes of the business model I refer to a change in the rationale of value creation and/or value capture. This can either be a completely new business model or the transformation from one business model to another. For example, the introduction of direct sales by Dell as new company in the computer industry is often used as example for a new type of business model (at a certain moment in time, in a specific context). This may be called business model innovation. A company can also change, for example, its revenue model from subscription to advertising. This is an example of business model transformation (and innovation if it is new).

With changes in the business model I refer to a change in the business model without a significant change in the rationale of value creation and/or value capture. For example the first version of a business model may be a rough sketch and a later version may be more detailed and concrete. This can be called business model development. A business model also changes during the transition from a R&D product to a commercial product. For example, in the R&D phase different kinds of actors are important than in the commercialization phase. This may be referred to as the business model life-cycle. Finally, a business model itself can contain dynamic elements. For example, a marketplace in the organizational network implies that the actors can differ per transaction or a value proposition based upon network externalities implies dynamics in value creation. This may be called dynamic business models.

What do you think of the different kinds of dynamics? Do you have ideas about other ways of categorizing dynamics? Do you have examples of different kinds of change?


Erwin Fielt said...

Interesting is also whether the realized changes of business model are planned or emergent.

Ecommerce web developers said...

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