MIS 6322

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MIS 6322

• Chapter 4
• Business Models

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Chapter 4 Business Models

• Questions answered in this chapter
• What are the four components of an online
  business model?
• Do firms compete on value propositions or value
  clusters?
• What are the approaches to developing an online
  offering, whether the business is providing a
  product, service, or information?
• What is a successful, unique resource system?
• What are the revenue sources available to firms?

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Components of a Business Model
Value Cluster
Online Offering
Resource System
Financial Model
Exhibit 4-1
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Value Propositions Value Clusters

• Value Proposition - requires management to
  specify three things
• Target segment
• Focal customer benefits
• Key resource that give market advantage
• Value Cluster - value proposition consisting of
  a cluster of composed of three parts
• Choice of target customer segments
• Particular focal combination of customer-driven
  benefits
• Rationale for why this firm and its partners can
  deliver the value cluster in a significantly
  better way than competitors

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Value Propositions Value Clusters (contd)

• Choice of Segments
• Market size and growth rates
• Unmet or insufficiently met customer needs
• Weak or nonexistent competitors
• Choice of Focal Customer Benefits
• Single-benefit approach
• Multiple-benefit approach
• Choice of Unique Differentiating Capabilities
• Tangible assets
• Intangible assets
• Capabilities of the organization

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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 believable?
• Is it perceived as unique or indistinguishable
  from other propositions or clusters?
• Will it provoke action on the part of the target
  customer?

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Quality of a Value Proposition or Cluster contd

• Company Criteria.
• Does the company have the resources or
  capabilities to own this cluster?
• Will the organization rally around the
  proposition or cluster?
• Will it block or facilitate the eventual move to
  additional vertical markets?
• Competitive Criteria.
• Are other competitors trying to hold a similar
  proposition or cluster?
• Can current or future competitors match this
  cluster?
• How easy is it for future competitors to match
  this cluster?

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The Online Offering

• Scope of the Offering
• Category-Specific Dominance-Companies that focus
  exclusively on one product category, such as
  flowers.
• Cross-Category Dominance- The extension of
  product offerings from a single category to
  additional product categories, such as Amazon.com.

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Customer Decision Process - Flower Example
Exhibit 4-2
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Criteria to Assess the Quality of a Resource
System

• Uniqueness of the system
• Links between resources and benefits
• Links among resources in the system
• Links between virtual world and physical world
  business systems
• Sustainable advantage

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Revenue Models

• Advertising- Earning revenue through the selling
  of ads, site sponsorships, event underwriting, or
  other forms of communication
• Product, Service, or Information Sales- Income
  generated from the sale of goods on the site
• Transaction- Revenue accrued from charging a fee
  or taking a portion of the transaction sum
• Subscription- Revenue generated through
  subscriber fees for magazines, newspapers, or
  other information/service businesses
• License Fees- Revenue generated from licensing of
  content

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Online Business Models

• Metamarket Switchboard Model
• Traditional and Reverse Auction Models
• Freshest-Information Model
• Highest-Quality Model
• Widest-Assortment Model
• Lowest-Price Model
• Most-Personalized Model

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Summary of Online Business Models