The Role of the Business Model in capturing a Technologys Value

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The Role of the Business Model in capturing a
Technologys Value

• The value of an idea or technology depends upon
  the business model. There is no inherent value in
  technology per se. The value is determined
  instead by the business model used to bring it to
  market. The same technology taken to market
  through two different business models will yield
  different amounts of value.
• Henry Chesbrough, author of Open Innovation

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Every business model should cover 6 things

• 1) Articulate Value Proposition write the
  pitch to the customer that shows them that
  there is a difference (value) between their
  willingness to pay and the price they are
  charged.
• What does the customer get and what do they have
  to give up to get it? ----why should it be a
  no-brainer for them to purchase?
• customers can benefit (receive value) from cost
  savings or new possibilities or solutions offered
  by the product

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Every business model should cover 6 things

• 2) Identify a market segment of customers The
  people to whom the pitch of the Value
  Proposition is made and who benefit (ultimately)
  from the product.
• Remember a segment is a group of people who
  react to your Value proposition (offering) in a
  similar way.
• Part of identifying them includes telling how
  many there are Market Size customers X
  purchases X Price
• The customer is the person who writes the check.
  This may be different from the user.

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Every business model should cover 6 things

• 3) Describe the revenue generating mechanisms of
  the firm and estimate the cost structure (and
  profit potential) of the product, given value
  proposition
• Outright sale, renting, charging by transaction,
  advertising and subscription models, licensing,
  giving away the product but selling after-sales
  support or service

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Every business model should cover 6 things

• 4) The structure of the Value Chain what
  part(s) will our firm (licensee) play in creating
  the product and delivering it to the customer?
  What parts will be outsourced?
• The Value Chain describes how the value created
  will be divided up between customers, the firm
  (licensee) and its suppliers.  

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What does the licensees Value Chain look like?

• Margin refers to the profit margin received from
  performing some and outsourcing other activities
  in the value chain. The organization is able to
  deliver a product for which the customer is
  willing to pay more than the sum of the costs of
  all activities in the value chain.

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Every business model should cover 6 things

• 5) How the firm fits within the Value Network of
  customers, suppliers, complementary firms
  (partners) and..competitors
• Helps you refine the specific market niche you
  are targeting and makes you acknowledge the
  competitive environment in your business model
  with your strategy (next slide)

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The firms position in the Value Network
Licensee, with cool product
From http//industrydirections.com/eBusiness/eBusi
.htm
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Every business model should cover 6 things

• 6) The competitive strategy by which the firm
  will gain and hold a Sustainable Competitive
  Advantage ( SCA) over rivals.
• SCA is a combination of Intellectual Property,
  unique company capabilities (core competencies)
  and team synergies that is rare and difficult to
  imitate by competitors.

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Business Models

• A Business Model is a 2-3 page description NOT a
  business plan.
• Where you get the money to implement the business
  model is not considered.
• The 6 things to cover in each of your business
  models are interrelated and in no particular
  order.

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XEROX Model 914, Introduced 1959
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Xerox the 914 copier, 1959

• Arthur D. Little Difficult to identify a value
  proposition no application for which it is
  unusually well suited in comparison with other
  available equipment Assuming only a few hundred
  copies per monthcustomer will not invest
  thousands of dollars for a copier

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Innovative Model

• Razor and razor blade business model sell
  equipment (razor) at modest cost then sell
  supplies at high mark-up (blades)
• Value proposition high quality copies in high
  volume, at a low monthly lease rate
• Charge by the copy 4 cents each-
• Cancelable lease for 95 per month for first 2000
  copies .0475 each
• Result users averaged 2000 copies per day not
  per month

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Xerox value chain

• The organization was designed around
• delivering completely configured copiers (no
  compatibility with third-party equipment) sold
  through its own sales force and maintained by its
  own technicians with bulk of profits made from
  sales of supplies and services