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?

Business models for mobile health care: A service or product perspective?

With the advances in information, communication and sensor technology a new breed of mobile applications become possible that offer new opportunities for health care. These mobile health applications enable monitoring and treatment of the patient in his/her personal environment. I am currently involved in a project were we develop business models for mobile health as a follow-up to a technological R&D project.

What in my opinion is a very crucial decision is whether one should base these business models on a product or service perspective. My first impression is that often a product perspective is taken while a service perspective may be needed. While both perspectives can take the user/patient experience as starting point they differ in how the user/patient is supported in his/her health activities.

A business model for mobile health based upon a product perspective puts the mobile device (phone, PDA, special device) and/or the health software central and has a device or software supplier as focal actor in the supply network. It focuses on buying/selling health devices and/or software.

A business for mobile health based upon a service perspective puts the monitoring and treatment services central and has a mobile health service provider as focal actor in the delivery network. It focuses on the subscription to and delivery of health services.

The choice for a service perspective is not only having a core service instead of a core product, it also forces one to think of facilitating and support services (see a previous post) that increase the user experience and convenience. Facilitating services are, for example, regular updates of the software or in-depth analysis of health data on a remote server. Supporting services are, for example, access to consultation by health professionals or sharing data in communities.

Probably the best option is to have a high-level evaluation of both perspectives before having an in-depth analysis of one of them (or a mix). What do you think of this? Do you perceive these differences? Have you encountered examples of one of these approaches, or maybe a mixed approach?

Real virtual worlds: EveryScape in between Fist and Second Life?

By now there is more and more critique on Second Life, see for example Tom Davenport. However, in my opinion Second Life is interesting because of the development of new ICT capabilities and the way people make use of these capabilities (see also a previous post). One of the things fascinating me is that many users are recreating the ‘real’ world as exactly as possible in the virtual world. With respect to a ‘real virtual world,’ I suggested that an interesting platform could emerge when Second Life, Google Earth/Maps, and Flickr (with Microsoft‘s Photosynth) would integrate. I just found out that this is coming sooner then I expected. EveryScape will launch in Fall 2007 and will offer a 3D virtual view upon the real world.

What is not clear to me is what the business model of EveryScape will be. Will EveryScape, just like Second Life, have ‘a fully-integrated economy architected to reward risk, innovation, and craftsmanship’(Second Life: The Marketplace). Will the ‘Scape Artist,’ as they are called by EveryScape, retain the IP rights of their creations? Moreover, what about the rights of the people and companies from the real world? Will the owner of a building in the real world also be the owner of that building is EveryScape? Will EveryScape pay the owner for using the virtual version of the building, or will the owner have to pay EveryScape for using the virtual version of the building?

Have you read more about this? What is your opinion?

What are the unique value propositions of innomediaries?

In a previous post I discussed innomediaries and suggested that they can build unique capabilities (compared to other actors in a business network) based upon the following characteristics: connectivity, specialization, and neutrality.

Den Hertog (pdf of article) discusses services of intermediaries (or knowledge intensive business services) that can fill or bridge various gaps in innovation processes with respect to resources and innovation management capabilities. Relating this to the previous discussed intermediaries' characteristics, I would argue that the more these services make use of connectivity, specialization, and neutrality (and their linking), the more there is a need (and, therefore, opportunity) for innomediaries.

Following is a list of the services mentioned by den Hertog and a first attempt of relating them to the intermediaries' characteristics:

Based upon this mapping experience-sharing and benchmarking seem to be the kind of services that offers innomediaries opportunities for unique value propositions towards innovation seekers and solution providers.

Electronic Offering Model

In the early days of e-commerce there was considerable attention to understanding the phenomena. Nowadays, there is less attention for this in the research community. In the mean time business presence on the web is still extending, both in a traditional (Web1.0) and new way (Web2.0). Therefore, it is still important to preserve and develop our understanding of doing business on the Internet.

While working on new service development and service design I studied the NetOffer model of Grönroos. It is a model of Internet offerings based upon the Grönroos Augmented Service Offering model. Grönroos refers in the notes at the end of the article to the ICDT model of Angehnr (article). I was not very enthusiastic about the way the NetOffer model deals with information and communication. Therefore, I had the idea of combining the Netoffer model and the ICDT model into the Electronic Offering model, as presented below. I hope to soon write more about it and evaluate the model with a case study.

Innomediaries: The capabilities of intermediaries in (open) innovation networks

The intermediary is sometimes popping up in discussions on new business models and innovation strategies, such as 'open innovation' and 'connect & develop.' This already resulted in the term 'innomediaries' (Google search). Why would this be? The middleman has been proclaimed death many times, in particular with the increasing possibilities of ICT.

An intermediary brings together actors and facilitates demand and supply activities for the exchange of products (goods, services, ideas), information, and money. The term ‘intermediate’ refers to a position: being or occurring at the middle place, stage, or degree or between extremes (Merriam-Webster).

Being in the middle emphasizes that intermediaries can occupy a special position in the business network and build capabilities based upon:

1. Connectivity: Intermediaries can connect many customers with many suppliers. Therefore the intermediary can provide services that individual customers and suppliers cannot offer and gain efficiencies via the reduction of necessary contacts between customers and suppliers.

2. Specialization: Intermediaries can specialize in exchange activities and supportive production functions; an exchange is a task in itself.

3. Neutrality: Intermediaries can act as a neutral party, a buffer between the interests of customers and suppliers.

What are your ideas on this? Are intermediaries a dying breed? Or will they stay but do they have to adapt their role? Or will nothing change at all?

The relevance of business models: An integrative approach

What is the added value of working with business models for practitioners? I think three of the major benefits are the helicopter view, the structured way of working, and the integrative approach.

I will discuss the integrative approach in this post. I work on mobile services in the health care using the STOF business blueprint method and model (Service, Technology, Organization, and Finance). In a 'valorization' project we try to identify what it takes to bring a specific (technological) prototype application to the market. In one of the business model design sessions a health professional was surprised to find out from an application engineer that the software of the prototype could not be one-on-one transferred into a market-ready product.

What is integrative about this? Firstly, the business model design sessions require the presence of persons from the business side and from the technology side, and stimulate a constructive discussion about their mutual dependence. Secondly, once it was clear that the software could not be transferred, it was possible to think of the consequences for the organization and finance in a structured way. What capabilities are required to build a market-ready product and which organization has these capabilities? What investment does it require to build a market-ready product and what does that mean for the time-to-market?

What are your ideas and experiences on this? Do you see similar benefits? Are these really benefits of designing business models?