In the last two decades, Business Model Innovation has proved to be a driver of

enormous growth for organisations.

When discussing Business Model Innovation, it is necessary to determine what

exactly a business model is. Osterwalder (2010) describes a business model as
the rationale of how an organization creates, delivers and captures value. This
is reminiscent of (Teece, 2010, p1) argument where he suggests that a business
model is a managements hypothesis about what a customer wants, how they
want it, and how the enterprise can best organise to meet those needs, get paid
for doing so and make a profit. Essentially, a business model outlines
sustainability and profit (Osterwalder et al, 2005,). It has become a relatively
recent discipline, largely emerging over the past two decades. This is partly due
to the growth of performing business online. Due to the increasingly competitive
nature of the market place it is necessary for businesses models to be innovative.
This review will outline how business models have become more innovative. This
will involve an analysis of how areas such as social media (etc.) have evolved as
a result of innovation. Recent works by academics and researchers will be used
to support this view.
In order to analyse how Business Model Innovation has evolved over the last two
decades, it is important to clarify where exactly innovation fits into a business
model. Kastelle (2012) argues that the organisation firstly needs to be stable.
Thus, a light bulb moment rarely occurs. In the second decade of the 21st century,
Apple Inc. stands out as the worlds most famous, and currently richest, company in the
world. To the general public, Apple, is known mainly today for its iOS products. The iPhone,
iPad, and their predecessor the iPod. These products placed highly sophisticated, user
friendly and innovative hardware and software in the hands of the consumer for the first time
and were a huge commercial success. Apple was so commercially strong, that in March
2013, when its stock value had dropped to 63 percent of its September 2012 peak, Apple still
had the highest market capitalisation of any company in the world. As a result of its
phenomenal success, at the end of fiscal 2012 (year end September 29) Apple had $121.3
billion in liquid assets: $10.7 billion in cash and cash equivalents, $18.4 billion in short-term
marketable securities, and $92.1 billion in long-term marketable securities. (Lazonik,
Mazucatto, Tulum, 2013 pg.1)
The recent launch of Apples IPhone 6 supports Kastelle (2012) assumption.
Here, Apple already had a number of successful products. By using this existing
technology as a platform, they were able to brand a new innovative product.
The fact that Apple have sold ten million units of the IPhone 6 in its opening
weekend supports the fact that this is an innovative business model (Washington
Post, Sept. 2014). This again highlights that a company needs to be stable in
order to be innovative. Furthermore, organisations require a business model in
which all of the building blocks reinforce one another (Osterwalder in Kastelle,
2012.). With that in mind it can be argued that innovation has become a gradual
process within successful business models over the past two decades.

The growth of social media sites such as Facebook and Twitter over the past
decade has been staggering. By the end of 2013 Facebook had 1.23 billion users,
adding 170 million users in just one year. (Kiss, The Guardian, February 2014)
The most innovative part of the social network business model is that it allows
the user, or the customer, to be the central part of the business model. In
comparison to traditional business models from the 20 th century, this was a
different way of thinking. Social media has caused every business to re-evaluate
how they present products to customers. This is particularly the case for internet
based companies. They are faced with the dilemma of how to create revenue
when customers expect online services to be free (Teece, 2010, p.1). Social
media forms a basis for an organisations awareness of user opinions (Wirtz,
B.W., et al, 2010, p6). A successful example of a social media business model is
Myspace. Its original business model was innovative as its enormous usage
allowed the company to generate indirect revenue from advertising. This was
due to the fact that a user generated profile involved the posting of music,
videos and other personal preferences. The fact that this internet- based
company was sold for $580 million to Rupert Murdoch supports the view that
social media is a crucial aspect to any organisations success (Wirtz, B.W., et al,
2010, p9). Therefore, placing the customer at the centre, business models has
been a driver of spectacular growth for such organisations.

Web 2.0 and its effect on BI

Open Source
The dot-com crash of the late 90s, lead to a new focus on how companies
viewed Business Models as a whole. This lead to the concept of Business Model
Innovation, which evolved throughout the early 00s. This concept refers to
delivering on existing products that are produced by existing technologies to
existing markets in order to innovate on those ideals, without necessarily having
to rely on new markets or technology (Girota and Netessine, 2014). Henry
Chesborough (2003) suggests that companies that refuse to innovate die.
Chesborough puts forward the idea of Open Innovation, where businesses
would use external sources to innovate within their organisation.
An example of a company implementing the ideals of Open Innovation is
Nokia, the mobile communications company. Nokia is an example of how a
traditional diversified corporation that consisted of a number of subsidiary
companies managed to transform its corporate business model rapidly (during
19901996) into one with fewer businesses, exclusively related to mobile
communications, and consequently (19962007) achieved unprecedented,
decade-long global success in the telecommunications industry. (Aspara,

Lamberg et al. 2013.) Despite the fact that Nokia outmanoeuvred Apple Inc. on
research and development spending, they were unable to head off the threat
of the iPhone back in 2007. http://blogs.wsj.com/techeurope/2012/05/14/nokia-outspent-apple-nine-times-on-rd/
Between 2004 and 2007the years leading to Apples first iPhone launch
Nokias total research and development spend was 17.1 billion ($22.2 billion
at todays exchange rate), against Apples $2.5 billion in the same period.

Some of the ideals of Open Innovation include, sharing your inventions and
innovations to others (such as open source software i.e Linux), working
collaboratively with external partners where it is mutually beneficial and
crowdsourcing via social media/forums/web chat etc.
Crowd Sourcing
Lego is another example of a firm that is using crowdsourcing. It has gone global
with its Cuusoo crowdsourcing platform. This allows users to submit designs for
new Lego products. Users can then vote if they would like to see a product
launched. If a product gets more than 10,000 votes, Lego will attempt to put the
product through the design phase, but must first consider any legal or technical
issues. The advantages to Lego are numerous. The amount of submissions
ensures that new ideas will be thought of that their designers would not have
thought of, however good they may be. They are building a relationship with
their customers through their interactions with the site. Furthermore, the product
launch can be cheap, as the process of voting has already created a buzz around
the product. For the customer, the incentive is that they will receive 1% of the
net revenue of the product. They also get to see an idea or object, that they may
have a close relationship to, made into a Lego product.