Title: SHARIFAH AKMAM SYED ZAKARIA SCHOOL OF CIVIL ENGINEERING, ENGINEERING CAMPUS, UNIVERSITI SAINS MALAYS
1SHARIFAH AKMAM SYED ZAKARIASCHOOL OF CIVIL
ENGINEERING, ENGINEERING CAMPUS, UNIVERSITI
SAINS MALAYSIA, 14300 NIBONG TEBAL, PENANG,
MALAYSIA.TEL 04-5996253 FAX 04-5941009EMAIL
AKMAM_at_ENG.USM.MY
2 Business Idea
Business Model
3What is a business model?
- A business model is the mechanisms that are used
by companies to represent various aspects of its
business, including its purpose, offerings,
strategies, infrastructure, organizational
structures, trading practices, and operational
processes and policies. - This is the most important strategy to generate
profit (make money) - Over the years, business models have become much
more sophisticated.
4Evolution of business model
- In the 1950s, new business models came from
McDonald's Restaurants and Toyota. - In the 1960s, the innovators were Wal-Mart and
Hypermarkets. - The 1970s saw new business models from FedEx and
Toys R Us - the 1980s from Blockbuster, Home Depot, Intel,
and Dell Computer - the 1990s from Southwest Airlines, Netflix, eBay,
Amazon.com, and Starbucks.
5Case Study
Home Depot
- Huge product assortment
- Prices are 20 30 below hardware stores
- Obsessed with offering high quality customer
service - Lifetime value of customers 25,000
- Well-trained, highly motivated salespeople earn
above average salaries - Customer problem solving is encouraged
- Internet site offers many home improvement tips
- One of todays most successful retailers
6Best Brands 2008
- 6
- Toyota
- Japan
- Quality concerns have increased overall, but
Toyotas reliability and its hybrid strategy are
leaving auto rivals trailing.
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8Case Study
Amazon.com
- Strong sales, no profits
- Customer-driven to its core
- Each customers experience is unique
- Provides great selection, good value, discovery
and convenience - A true online community
Discussion Will Amazon.com Survive?
9- Poorly thought out business models were a problem
with many dot-coms. - Today, the type of business models might depend
on how technology is used. - For example, entrepreneurs on the internet have
also created entirely new models that depend
entirely on existing or emergent technology. - Using technology, businesses can reach a large
number of customers with minimal costs.
10The importance of business model
- In developing a business model especially for a
new product/service/business, the most important
element is the dimension of time, more
specifically the timing of investments/expenses
or cash flow out versus the receipt of
revenues/accounts receivables or cash flow in. - The principle issues are
- Essentially how much of the product or service
has to be built before customers can make some
level of either actual purchase decision and/or
purchase commitment? - How much investment/expense is required to secure
these revenues/commitments from customers? and - How much risk is there in achieving net positive
cash flow, given the required upfront investment
and the future time to capture revenues/receivable
s cash inflow, within an acceptable timeframe, if
ever?
11- These business model issues often make or break
new ventures. - Business models that are optimized to reduce the
upfront investment, that accelerate the
revenue/receivables cash inflow, that obtain
cogent and reliable customer feedback often and
earlier, and that take other measures to reduce
the investment risk all have a higher probability
of business success.
12- The process of business model design is part of
business strategy. - The implementation of a company's business model
into organizational structures (e.g. workflows,
human resources) and systems (e.g. information
technology architecture, production lines) is
part of a company's business operations. - It is important to understand that business
modeling commonly refers to business process
design at the operational level, - whereas business models and business model design
refer to defining the business logic of a company
at the strategic level.
13- For example, in the entertainment industry, does
one have to produce a movie for RM 1 million plus
before any box office revenues can be derived, or
can the business model be evolved by licensing
certain established characters/signing leading
movie stars for secondary licensing rights for
fast-food chain promotional-tie-ins, movie
merchandise licenses, etc. can generate
pre-release cash inflow through licensing fees.
14- Hot Laptop
- With partners such as Acer, Ferrari develops
products that represent performance, strength,
and credibility. - This Ferrari notebook PC from Acer was the first
carbon-fiber laptop on the market. - Some 40 of Ferrari's merchandise is developed
and produced directly, while the other 60 is
licensed. - Other partners include Puma, Mattel, and Lego.
Ferrari is working on an innovative mobile phone
for its next license.
15- Or a different entertainment business model might
be to create and promote a Funniest Video"
website platform for users to contribute the
content and then based on site traffic, sell
advertising for revenues. - Here, the upfront investment for creating and
promoting the site could be a fraction of the
investment to produce a movie and the chances
that it would be more popular than a movie may be
much higher, as it can be tweaked as it is
developed while a movie is an all or nothing
production.
161. The subscription business model
- This is a business model where a customer must
pay a subscription price to have access to the
product/service. - The model was pioneered by magazines and
newspapers, but is now used by many businesses
and websites. - Rather than selling products individually, a
subscription sells periodic (monthly or yearly or
seasonal) use or access to a product or service. - Thus, a one-time sale of a product can become a
recurring sale and can build brand loyalty. - It is used for anything where a user is tracked
in both a subscribed, and an unsubscribed status.
17- Industries which use this model include book
clubs, record clubs, telephone companies, cable
television providers, cell phone companies,
internet providers, pay-TV channels, software
providers, business solutions providers,
financial services firms, fitness clubs, and
pharmaceuticals, as well as the traditional
newspapers and magazines. - Renewal of a subscription may be periodic and
activated automatically, so that the cost of a
new period is automatically paid for by a
pre-authorized charge to a credit card or a
checking account. - A common model on web sites is to provide content
for free, but restrict access to premium features
(for example, archives) to paying subscribers.
182. The razor and blades business model
- Freebie marketing, also known as the razor and
blades business model is the concept of either
giving away a sellable item for nothing or
charging an extremely low price in order to
generate a continual market for another,
generally disposable, item. - The concept was pioneered by King C. Gillette,
inventor of the disposable safety razor and
founder of Gillette Safety Razor Company (today
known as Global Gillette, a division of Procter
and Gamble).
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203. Network model
- In economics and business, a network effect (also
called network externality) is the effect that
one user of a good or service has on the value of
that product to other users. - The classic example is the telephone.
- The more people own telephones, the more valuable
the telephone is to each owner. - This creates a positive externality because a
user may purchase their phone without intending
to create value for other users, but does so in
any case. - The expression "network effect" is applied most
commonly to positive network externalities as in
the case of the telephone. - Negative network externalities can also occur,
where more users make a product less valuable,
but are more commonly referred to as "congestion"
(as in traffic congestion or network congestion).
21- Software
- There are very strong network effects operating
in the market for widely used computer software. - Take for example Microsoft Office.
- For many people choosing an office suite, prime
considerations include how valuable having
learned that office suite will prove to potential
employers, and how well the software
interoperates with other users.
22Best Brands2008
- 2
- Microsoft
- U.S.
- The launch of its Windows Vista operating system,
coupled with its Xbox game console, keeps the
software giants latest technology in front of
consumers.
23- Microsoft Windows is a further example of network
effect. - The most-vaunted advantage of Windows, and that
most publicized by Microsoft, is that Windows is
compatible with the widest range of hardware and
software. - Although this claim was justified at some point
of time, it was in reality the result of network
effect hardware and software manufacturers
ensure that their products are compatible with
Windows in order to have access to the large
market of Windows users. - Thus, Windows is popular because it is well
supported, but is well supported because it is
popular.
242007
- 2
- Microsoft
- 56,926 million
- 2005 Rank/Value2 / 59,941 million
- -5 change from 2006
- Based in U.S.
- Threats from Google and Apple haven't yet offset
the power of its Windows and Office monopolies
25- Web sites
- Many web sites also feature a network effect.
- One example is web marketplaces and exchanges, in
that the value of the marketplace to a new user
is proportional to the number of other users in
the market. - For example, eBay would not be a particularly
useful site if auctions were not competitive. - However, as the number of users grows on eBay,
auctions grow more competitive, pushing up the
prices of bids on items. - This makes it more worthwhile to sell on eBay and
brings more sellers onto eBay, which drives
prices down again as this increases supply, while
bringing more people onto eBay because there are
more things being sold that people want.
26Case Study
Caterpillar
- Dominates worlds markets for heavy construction
and mining equipment. - Independent dealers are key to success
- Dealer network is linked via computers
- Caterpillar stresses dealer profitability,
extraordinary dealer support, personal
relationships, dealer performance and full,
honest, and frequent communications
274. Disintermediation model
- In economics, disintermediation is 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. - One important factor is a drop in the cost of
servicing customers directly.
28- Disintermediation initiated by consumers is often
the result of high market transparency, in that
buyers are aware of supply prices direct from the
manufacturer. - Buyers bypass the middlemen (wholesalers and
retailers) in order to buy directly from the
manufacturer and thereby pay less. - Buyers can alternatively elect to purchase from
wholesalers. - Often, a B2C company functions as the bridge
between buyer and manufacturer. - Computer hardware and software
- Travel agencies
- Bookstores and music stores
- Stock Purchasing see E-trade
- Prime example of disintermediation is Dell, Inc.,
which sells many of its systems direct to the
consumer thus bypassing traditional retail
chains.
29Best Brands2008
- 12
- Hewlett-Packard
- U.S.
- HP last fall edged out Dell as the worlds
largest PC maker by market share. Sleek new
laptops are helping boost its consumer business.
305. Bricks-and-clicks model
- Bricks-and-clicks is a business model by which a
company integrates both offline (bricks) and
online (clicks) presences. - It is also known as click-and-mortar or
clicks-and-bricks, as well as bricks, clicks and
flips, flips referring to catalogs. - For example, an electronics store may allow the
user to order online, but pick up their order
immediately at a local store, which the user
finds using locator software. - Conversely, a furniture store may have displays
at a local store from which a customer can order
an item electronically for delivery.
31- The bricks and clicks model has typically been
used by traditional retailers who have extensive
logistics and supply chains. - Part of the reason for its success is that it is
far easier for a traditional retailer to
establish an online presence than it is for a
start-up company to employ a successful pure "dot
com" strategy, or for an online retailer to
establish a traditional presence (including a
strong brand).
326. loyalty business model
- The loyalty business model is a business model
used in strategic management in which company
resources are employed so as to increase the
loyalty of customers and other stakeholders in
the expectation that corporate objectives will be
met or surpassed. - A typical example of this type of model is
quality of product or service leads to customer
satisfaction, which leads to customer loyalty,
which leads to profitability.
33Case Study
Intel
- Has dominated the chip industry
- Success is directly related to Intels
competitive strategy - Strategy focuses on superior value and product
leadership
- Heavy focus on product and advertising innovation
and RD investments - Changing market needs have challenged Intel to
adapt - Intel is now capitalizing on the Internet
34Best Brands2008
- 5
- Nokia
- Finland
- Nokia built its brand at both ends of the market,
with high-end multimedia handsets for upscale
buyers and low-priced phones for emerging
countries.
357. Service model
- Service economy can refer to one or both of two
recent economic developments. - One is the increased importance of the service
sector in industrialized economies. - The term is also used to refer to the relative
importance of service in a product offering. - That is, products today have a higher service
component than in previous decades. - In the management literature this is referred to
as the servitization of products. - Virtually every product today has a service
component to it. - The old dichotomy between product and service has
been replaced by a service-product continuum. - Many products are being transformed into
services.
36- For example, IBM treats its business as a service
business. - Although it still manufactures computers, it sees
the physical goods as a small part of the
"business solutions" industry. - They have found that the price elasticity of
demand for "business solutions" is much less
elastic than for hardware. - There has been a corresponding shift to a
subscription pricing model. - Rather than receiving a single payment for a
piece of manufactured equipment, many
manufacturers are now receiving a steady stream
of revenue for ongoing contracts.
37Best Brands2008
- 3
- IBM
- U.S.
- Big Blues ads promise to make customers feel
special. With powerful software, servers, and
sophisticated services its delivering.
38Case Study
UPS
- UPS is a 31 billion corporate giant
- UPS wanted to reposition itself as a supply
chain solutions provider - Developed new theme based on customer input
- Implemented, What Can Brown Do for You?
campaign - Realigned its sales and marketing organization
- Ads, web sites, and salespeople deliver message
daily
398. low-cost carrier model
- A low-cost carrier or low-cost airline (also
known as a no-frills or discount carrier or
airline) is an airline that offers generally low
fares in exchange for eliminating many
traditional passenger services. - The concept originated in the United States
before spreading to Europe in the early 1990s and
subsequently to much of the rest of the world. - The term originated within the airline industry
referring to airlines with a lower operating cost
structure than their competitors. - While the term is often applied to any carrier
with low ticket prices and limited services,
regardless of their operating models, low-cost
carriers should not be confused with regional
airlines that operate short flights without
service, or with full-service airlines offering
some reduced fares.
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41Malaysia
- AirAsia Berhad is a low-cost airline based in
Kuala Lumpur, Malaysia. - It operates scheduled domestic and international
flights and is Asia's largest low fare, no frills
airline. AirAsia pioneered low cost travelling in
Asia. - It is also the first airline in the region to
implement fully ticketless travel and unassigned
seats. - Its main base is the Low Cost Carrier Terminal
(LCCT) at Kuala Lumpur International Airport
(KLIA). - Its affliate airlines Thai AirAsia and Indonesia
AirAsia fly from Suvarnabhumi Airport, Thailand
and Soekarno-Hatta International Airport,
Indonesia, respectively. - The airline was established in 1993 and started
operations on 18 November 1996. - It was originally founded by a government-owned
conglomerate DRB-Hicom. - On December 2, 2001, the heavily-indebted airline
was purchased by former Time Warner executive
Tony Fernandes's company Tune Air Sdn Bhd for the
token sum of one ringgit. - Fernandes proceeded to engineer a remarkable
turnaround, turning a profit in 2002 and
launching new routes from its hub in Kuala Lumpur
International Airport at breakneck speed,
undercutting former monopoly operator Malaysia
Airlines with promotional fares as low as RM1 (US
0.27).
42- On 27 March 2006, the Government of Malaysia
announced that AirAsia will take over 96
non-trunk routes, in addition to 19 domestic
trunk routes. - This was part of Malaysia Airlines route
rationalization programme which saw a large
number of its domestic sectors being transferred
to AirAsia from 1 August 2006. - On September 2007, AirAsia's Kuala Lumpur hub is
fully operated with A320s while Thai AirAsia
received its first Airbus A320 in October 2007. - Indonesia AirAsia will receive its first Airbus
by January 2008. - On April 5, 2007, AirAsia announced a three-year
partnership with the British Formula One team
ATT Williams. - The airline brand is displayed on the helmets of
Nico Rosberg and Alexander Wurz, and on the
bargeboards and nose of the cars.
439. online and offline model
- The terms online and offline (also on-line and
off-line) have specific meanings with respect to
computer technology and telecommunication. - The concepts have however been extended from
their computing and telecommunication meanings
into the area of human interaction and
conversation, such that even offline can be used
in contrast to the common usage of online (e.g.,
"I bought that shirt offline").
44- One example of a common use of these concepts is
a Mail User Agent that can be instructed to be in
either online or offline states. - One such MUA is Microsoft Outlook. When online it
will attempt to connect to mail servers (to check
for new mail at regular intervals, for example),
and when off-line it will not attempt to make any
such connection. - The online or offline state of the MUA does not
necessarily reflect the connection status between
the computer on which it is running and Internet.
- That is, the computer itself may be
onlineconnected to Internet via a cable modem or
other meanswhile Outlook is kept offline by the
user, so that it makes no attempt to send or to
receive messages.
45- Another example of the use of these concepts is
in the world of digital audio technology. - A tape recorder, digital editor, or other device
that is online is one whose clock is under the
control of the clock of a synchronization master
device. - When the sync master commences playback, the
online device automatically synchronizes itself
to the master and commences playing from the same
point in the recording. - A device that is offline uses no external clock
reference and relies upon its own internal clock.
- When a large number of devices are connected to a
sync master it is often convenient, if one wants
to hear just the output of one single device, to
take it offline because, if the device is played
back online, all synchronized devices have to
locate the playback point and wait for each other
device to be in synchronization
46- A third example of a common use of these concepts
is a web browser that can be instructed to be in
either online or offline states. - The browser only attempts to fetch pages from
servers whilst in the online state. - In the off-line state, users can perform offline
browsing, where pages can be browsed using local
copies of those pages that have previously been
downloaded whilst in the on-line state. - This can be useful when the computer is offline
and connection to the Internet is impossible or
undesirable. - The pages are either downloaded implicitly into
the web browser's own cache as a result of prior
online browsing by the user, or explicitly by a
browser configured to keep local, up-to-date
copies of certain web pages, which are updated
when the browser is in the online state. - One such web browser capable of being explicitly
configured to download pages for offline browsing
is Internet Explorer. - When pages are added to the Favourites list, they
can be marked to be "available for offline
browsing."
4710. Professional open-source model
- Professional open-source is a business model that
many open-source software vendors are attempting
to follow. The model partners what is perceived
as "free" open-source software with paid
professional services. - As open-source software began to become popular
in the 1990s with the introduction of Linux,
there was a growing stigma that such a package
could not be trusted as stable or supported. - As a consequence, larger businesses would often
choose commercially distributed software over a
product that was released under an open-source
license. - However, there has been the growth in the number
of professional open-source companies - made
popular by companies like Liferay, Inc., Red Hat,
MySQL AB, and JBoss. - The business model of these companies tries "to
offer open-source software with a free license,
while using professional services, maintenance
and support for these products to derive
revenue."
48Top 10 e-Commerce Mistakes
49- 1. Weak Website Design
- Have several people look at your website and give
you honest feedback. - 2. Unclear Purpose
- Make sure your websites purpose is clear and easy
to see. - You should make it obvious why your website
exists right on the homepage. - Help customersdont make them guess.
- If you sell, make your product obvious.
50- 3. Shopping Obstacles
- Customers leave websites within seconds if they
meet with any obstacle blocking their purpose. - If you confuse or frighten customers with an
awkward checkout procedure, ask too many
questions, dont let them know whats coming
next, or they dont feel safe buying from you,
they will leave. - Make your shopping experience friendlyagain ask
for input from a few friends willing to look at
your website. - Once youve got your shopping system set up just
right, check the links once a week to be certain
it stays that way.
51- 4. Poor Marketing
- There are over four billion webpages on the
Internet. - How will people find yours?
- You must develop a plan to drive people to your
website. - You need to have a good marketing strategy.
- You can learn about marking tools and strategies
from most ecommerce web host providers. - Use the resources of your host, learn the ways of
web marketing and you will keep your website in
the public eye.
52- 5. Weak Customer Service
- If you sell a product, you need a customer
service plan. - The best way to develop one is to put yourself in
your customers shoes. - How would you want a problem resolved?
- Do your best to serve customers well and they
will reward you by sending their friends to your
website.
53- 6. Poor Product Choice
- Not everything should be sold on the Internet.
- Shipping costs, for example, are a big obstacle
for heavy products that your customer can get
locallyyou cant compete. - (But if your large product is unique, you may
succeed in spite of shipping costs.) - Clothing and shoes are difficult for some people
to purchase online as they prefer to try on
before buying. - Food products may spoil, candy may melt, glass
may break. - Evaluate your potential products with a
worst-case-scenario mentality. - Pick products that will give you the best chance
to succeed first, then expand and take more
chances after your business develops roots.
54- 7. Fail to Prepare for Success
- Youve heard of online businesses succeeding
overnight. - If you are so lucky, do you have a plan to deal
with a sudden onslaught of orders? - Even if your growth is gradual (as most growth
is) do you have a plan for the time you outgrow
your shopping cart your bandwidth allowance? - Plan ahead plan for growth.
- What seems like a great five-year shopping cart
deal may not work for you in three.
55- 8. Slow Shipping
- If your website promises two day shipping but
your customer doesnt get the product until day
four, guess who the customer will blame? - Use reputable shippers that offer guarantees.
56- 8. Slow Shipping
- If your website promises two day shipping but
your customer doesnt get the product until day
four, guess who the customer will blame? - Use reputable shippers that offer guarantees.
57- 9. Lack of Specialization
- Instead of trying to serve a huge market, pick a
niche and work to be the best in that niche. - Youll need to specialize in a small area to
build up a good reputation. - Reputation is key to have clout in the online
world.
58- 10. Missing Security
- Making your website secure is vital customers
will leave before buying if they dont feel your
system is safe. - Visitors wont be anxious to divulge even their
email address if they feel your website is
untrustworthy. - Electronic theft and website sabotage happens.
- Often overlooked when it comes to security is
protecting your client's information e-mail
address, billing address, phone numbers. - Pick reputable services to process your
customers credit cards. - And write a privacy policy or Intellectual
Property policy for your website. - Reassure your customers, then honor your promises
to protect their privacy.
59From Business Idea to Business model
- Bear in mind that, to develop a successful
business, you must - Define precisely the nature of the business
- Offer clearly identifiable products or services
- Tap a real need or generate a demand for your
product/service - Operate within your expertise and resources
- Have realistic targets and have reasonable
expectations - Keep everything as simple and straightforward as
possible.
60Thank you
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