Business models

A business model is an “abstract representation of an organization, be it conceptual, textual, and/or graphical, of all core interrelated architectural, co-operational, and financial arrangements designed and developed by an organization presently and in the future, as well as all core products and/or services the organization offers, or will offer, based on these arrangements that are needed to achieve its strategic goals and objectives.” That indicates that value proposition, value architecture (the organizational infrastructure and technological architecture that allows the movement of products, services, and information), value finance (modeling information related to total cost of ownership, pricing methods, and revenue structure), and value network articulate the primary constructs or dimensions of business models.

A business model describes the rationale of how an organization creates, delivers, and captures value, in economic, social, cultural or other contexts. The process of business model construction is part of business strategy.

In theory and practice, the term business model is used for a broad range of informal and formal descriptions to represent core aspects of a business, including purpose, business process, target customers, offerings, strategies, infrastructure, organizational structures, sourcing, trading practices, and operational processes and policies including culture. The literature has provided very diverse interpretations and definitions of a business model. A systematic review and analysis of manager responses to a survey defines business models as the design of organizational structures to enact a commercial opportunity. Further extensions to this design logic emphasize the use of narrative or coherence in business model descriptions as mechanisms by which entrepreneurs create extraordinarily successful growth firms.

Business models are used to describe and classify businesses, especially in an entrepreneurial setting, but they are also used by managers inside companies to explore possibilities for future development. Well-known business models can operate as “recipes” for creative managers. Business models are also referred to in some instances within the context of accounting for purposes of public reporting.

The last times it is talked about “liquid business model”. A more flexible business models.

Differnt business models:

• Bricks and clicks business model: business model by which a company integrates both offline (bricks) and online (clicks) presences. One example of the bricks-and-clicks model is when a chain of stores allows the user to order products online, but lets them pick up their order at a local store.
• Collective business models: business system, organization or association typically composed of relatively large numbers of businesses, tradespersons or professionals in the same or related fields of endeavor, which pools resources, shares information or provides other benefits for their members. For example, a science park or high-tech campus provides shared resources (e.g. cleanrooms and other lab facilities) to the firms located on its premises, and in addition seeks to create an innovation community among these firms and their employees.
• Cutting out the middleman model: the removal of intermediaries in a supply chain: “cutting out the middleman”. Instead of going through traditional distribution channels, which had some type of intermediate (such as a distributor, wholesaler, broker, or agent), companies may now deal with every customer directly, for example via the Internet.
• Direct sales model: direct selling is marketing and selling products to consumers directly, away from a fixed retail location. Sales are typically made through party plan, one-to-one demonstrations, and other personal contact arrangements. A text book definition is: “The direct personal presentation, demonstration, and sale of products and services to consumers, usually in their homes or at their jobs.”
• Distribution business models
• Value-added reseller model: a model where a business makes something which is resold by other businesses but with modifications which add value to the original product or service. These modifications or additions are mostly industry specific in nature and are essential for the distribution. Businesses going for a VAR model have to develop a VAR network. It is one of the latest collaborative business models which can help in faster development cycles and is adopted by many Technology companies especially software.
• Fee in, free out: business model which works by charging the first client a fee for a service, while offering that service free of charge to subsequent clients.
• Franchise: franchising is the practice of using another firm’s successful business model. For the franchisor, the franchise is an alternative to building ‘chain stores’ to distribute goods and avoid investment and liability over a chain. The franchisor’s success is the success of the franchisees. The franchisee is said to have a greater incentive than a direct employee because he or she has a direct stake in the business.
• Sourcing business model: a Sourcing Business Model is a type of business model that is applied specifically to business relationships where more than one party needs to work with another party to be successful. It is the combination of two concepts: the contractual relationship framework a company uses with its supplier (transactional, relational, investment based), and the economic model used (transactional, output or outcome-based).
• Freemium business model: a model that works by offering basic Web services, or a basic downloadable digital product, for free, while charging a premium for advanced or special features.
• Pay what you can (PWYC) is a non-profit or for-profit business model which does not depend on set prices for its goods, but instead asks customers to pay what they feel the product or service is worth to them.[46][47][48] It is often used as a promotional tactic, but can also be the regular method of doing business. It is a variation on the gift economy and cross-subsidization, in that it depends on reciprocity and trust to succeed.
• “Pay what you want” (PWYW) is sometimes used synonymously, but “pay what you can” is often more oriented to charity or socially oriented uses, based more on ability to pay, while “pay what you want” is often more broadly oriented to perceived value in combination with willingness and ability to pay.

See also

Market segmentation, Business Intelligence, Business plan

Material

• Why Business Models fail: Pipes vs. Platforms, Sangeet Paul Choudary, Wired Magazine

Papers

• Al-Debei, M. M., El-Haddadeh, R., & Avison, D. (2008). Defining the business model in the new world of digital business. In Proceedings of the Americas Conference on Information Systems (AMCIS) (Vol. 2008, pp. 1-11).
• O’reilly, T. (2007). What is Web 2.0: Design patterns and business models for the next generation of software. Communications & strategies, (1), 17.
• Magretta, J. (2002). Why business models matter.
• Teece, D. J. (2010). Business models, business strategy and innovation. Long range planning, 43(2), 172-194.

Books

• Afuah, A., & Tucci, C. L. (2000). Internet business models and strategies: Text and cases. McGraw-Hill Higher Education.
• Chesbrough, H. (2013). Open business models: How to thrive in the new innovation landscape. Harvard Business Press.
• Osterwalder, A., & Pigneur, Y. (2010). Business model generation: a handbook for visionaries, game changers, and challengers. John Wiley & Sons.
• Tennent, J., & Friend, G. (2011). Guide to business modelling. (Vol. 89). John Wiley & Sons.
• Muehlhausen, J. (2013). Business Models for Dummies. John Wiley & Sons.
• Mullins, J. W., & Komisar, R. (2009). Getting to plan B: Breaking through to a better business model. Harvard Business Press.