2019 Bussines of Things

Progress in IS
Jan F. Tesch Editor
Business Model
Innovation in the
Era of the Internet
of Things
Studies on the Aspects of Evaluation,
Decision Making and Tooling
Progress in IS
More information about this series at http://www.springer.com/series/10440
Jan F. Tesch
Editor
Business Model Innovation

in the Era of the Internet
of Things
Studies on the Aspects of Evaluation,
Decision Making and Tooling
123
Editor
Jan F. Tesch
Stuttgart, Germany
Dissertation Georg-August Universität Göttingen, 2017
Supervisory board
First supervisor: Prof. Dr. Lutz M. Kolbe
Second supervisor: Prof. Jan Muntermann
Third supervisor: Prof. Indre Maurer
Date of oral examination: 24th of October 2017
ISSN 2196-8705 ISSN 2196-8713 (electronic)

Progress in IS
ISBN 978-3-319-98722-4 ISBN 978-3-319-98723-1 (eBook)
https://doi.org/10.1007/978-3-319-98723-1
Library of Congress Control Number: 2018955918
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Foreword
The ability to establish novel business models is essential to ensuring the ongoing
success of traditional corporations in a digital era, but novel business models are
also a major theme for startups and SMEs. However, business model innovation
poses tremendous challenges, particularly in technology-driven industries. Despite
the salience of these well-known challenges, present innovation processes do not
yet reflect the requirements necessary for managing the ever-increasing complexity
of connected products, solutions, and their attendant ecosystems in a future world
of the Internet of things (IoT). In this regard, it is critical to form designated entities
which foster the systematic exploration of new business opportunities and which
provide an excellent foundation for strategic management decisions.
Since joining the Bosch Group in 2011, Dr. Jan F. Tesch has taken on several
roles in which he has supported the expansion of the business portfolio of various
business units into the digital space. In addition, Dr. Tesch has had the opportunity
to collaborate with numerous scholars, leading to many practical findings regarding
systematic business model innovation, and he has contributed to an enhanced
scientific understanding of the field. Dr. Tesch’s work has been published in
numerous peer-reviewed scientific journals, and he has participated in several
conferences on the topic of business model innovation. In his current role, Dr.
Tesch is supporting the development of IoT business model innovation and has
contributed to the company’s future direction with his findings.
This book serves as a synthesis of seven individual studies dealing with the
intersection of research and practice. The work outlines an innovation framework
for developing IoT-based business models built upon the learnings and insights
generated throughout the course of several innovation projects. Furthermore, Dr.
Tesch introduces novel tools, methods, and best practices to help business model
consultants support the decision-making of senior management.
Stuttgart, Germany Dr. Johannes Sommerhäuser

October 2017 Senior Vice President,
Head of Corporate Business Model
Innovation, Robert Bosch GmbH
v
Acknowledgements
The emerging paradigm of the so-called Internet of things (IoT) represents an

overwhelming opportunity to entrepreneurs, SMEs, and corporations alike.
Thereby, the ability to develop innovative new business models is seen as one
of the most challenging tasks. This topic has sparked my enthusiasm from as early
as I wrote my thesis graduating from Karlsruhe Institute of Technology in 2011,
where I was assigned to determine a viable business model for connected EV
charging equipment for Bosch. I discovered that for professionals in this field, it is
key to understand the intersection of economics, strategic management,
entrepreneurship, operations research, finance, and information systems. At this
time, however, it was not clear to me how these subjects merge together as a
whole—a circumstance also reflected by scientific literature’s emphasis on further
clarification of the topic business model innovation. Hence, my idea of pursuing a
Ph.D. was to combine the individual knowledge and thus to contribute to an
enhanced, interdisciplinary understanding. Furthermore, the book at hand also seeks
at providing business model innovation professionals with best practice tools for
decision-making based on experiences in IoT projects.
I am deeply thankful that I got the exceptional opportunity to pursue this
endeavor at both Robert Bosch GmbH and at the Chair of Information Management
at the University of Göttingen—a setting allowing for ideal conditions for
practice-oriented research. Within the following, I express my utmost gratitude
to all those who believed in and largely contributed to this endeavor along the way.
First and foremost, I would like to thank Prof. Dr. Lutz M. Kolbe, Dean of the
Faculty of Economic Sciences of the University of Göttingen, Prof. Dr. Jan Muntermann
and Prof. Dr. Indre Maurer for the supervision of the thesis. Also, I would like to thank
Reinhold Mörder, Thomas Schmidt, Christoph Erbacher, and Dr. Mark Müller for
giving me the chance to pursue this endeavor within the business unit Software
Innovations at Bosch. Furthermore, my deepest thankfulness is to my department
supervisor Dr. Marco Lang, who has given me invaluable support, freedom of scope,
vii
viii Acknowledgements
and valuable advice. Within the Robert Bosch GmbH, I would like to thank
Dr. Johannes Sommerhäuser and Doris Grammer for giving me the opportunity to
continue working on IoT topics within the newly founded corporate department for
Business Model Innovation (C/BM). Your leadership is a true inspiration to me.
Further thanks are to the co-authors of the studies within this book,
Dr. Gerrit Remané, Dr. André Hanelt, Monika Streuer, Kirstin E. Bosbach,
Dr. Uwe C. M. Kirschner, and Miriam Lehmbrink, for the excellent and fruitful
cooperation. In the same manner, I would like to thank the students who have
written their graduation thesis under my supervision, Benedikt Freiherr von
Ziegesar, Ronja Lamers, and Hardy Killus, for their magnificent work and their
valuable contribution to the overall research project. Particular thanks for their
excellent ideas, thoughts, and dedication to our joint research on IoT business
model innovation go to Anne-Sophie Brillinger and Dominik Bilgeri. I strongly
believe that our spirit of working as a team and putting the greater goal above
everyone’s incentive made the outcome a lot greater than the sum of each indi-
vidual’s efforts. This is what true teamwork is all about.
Apart from all the aforementioned, I would like to thank my colleagues from the
Chair of Information Management for the excellent working atmosphere and the
valuable scientific feedback: Dr. Alfred Benedikt Brendel, Benjamin Brauer,
Björn Hildebrandt, Dr. Carolin Ebermann, Daniel Leonhardt, Dr. Everlyn Piccinini,
Prof. Dr. Johann Kranz, Dr. Johannes Schmidt, Dr. Markus Mandrella,
Dr. Matthias Eisel, Muhammad Raheel, Dr. Patrick Urbanke, Patryk Zapadka,
Dr. Sebastian Zander, Dr. Simon Trang, Sromona Chatterjee, and Dr. Thierry Ruch.
I am also very gifted to enjoy deep and long-lasting friendships with some very
great minds: Anika Schweizer, Ann-Kathrin Schuon, Dominik Kollmuß,
Eva Zimmer, Dr. Ilja Nastjuk, Janine Flöter, Dr. Konrad Zimmer, Konstantin
Ohlert, Dr. Lukas Arenz, Dr. Martin Arenz, Matthias Feth, Michael Christophers,
Moritz Fanti, Oliver Biwer, Sabine Fuchs, Sarah Barkow, Sebastian Martens,
Steinar Vinne, and Thomas Meier. I know many of you for more than two decades.
We have gone through ups and downs of life together, and no matter what hap-
pened, we have always been there for each other. This is what really counts in life.
Last, but most important, I wholeheartedly thank my parents, Christa and Frank,
and my sister, Anna-Teresa Tesch. My parents have always sought for giving my
sister and me all freedom and infinite support to pursue whatever we found was the
right thing to do, even if it meant a high degree of their own abstinence. Without
their invaluable commitment and endless love, none of our prosperities would have
been even close to be achieved.
Jan F. Tesch
Contents
Part I Foundations
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Jan F. Tesch
Theoretical Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Jan F. Tesch
Part II Decisions and Evaluation in IoT Business Model Innovation

IoT Business Model Innovation and the Stage-Gate Process . . . . . . . . . 51
Jan F. Tesch, Anne-Sophie Brillinger and Dominik Bilgeri
The Evaluation Aspect of Digital Business Model Innovation . . . . . . . . 67
Jan F. Tesch and Anne-Sophie Brillinger
Part III Studies on the Roles of Tools and Methodologies in IoT BMI
The Business Model Pattern Database: A Tool
for Systematic BMI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Gerrit Remané, Andre Hanelt, Jan F. Tesch and Lutz M. Kolbe
A Business Model Perspective on Innovation Susceptibility . . . . . . . . . 145
Kirstin E. Bosbach, Jan F. Tesch and Uwe C. M. Kirschner
Profit Driving Patterns for Digital Business Models . . . . . . . . . . . . . . . 165
Monika Streuer, Jan F. Tesch, Doris Grammer, Marco Lang
and Lutz M. Kolbe
Customer Surveys as a Quantitative Evaluation Tool
for Digital BMI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177
Jan F. Tesch, Miriam Lehmbrink, Gerrit Remané and Lutz M. Kolbe
ix
x Contents
Scenario Planning as a Causal Evaluation Tool for IoT Business

Model Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209
Jan F. Tesch
Part IV Contributions
Findings and Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233
Jan F. Tesch
Implications—An Integrative Framework for IoT Business
Model Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243
Jan F. Tesch
Concluding Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251
Jan F. Tesch
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257
Acronyms
ADR Action design research

BM Business model
BMC Business model canvas
BMF Business model framework
BMI Business model innovation
DSR Design science research
IIoT Industrial internet of things
IoT Internet of things
KPI Key performance indicator
KSF Key success factor
MSP Multi-sided platform
MVP Minimum viable product
NFC Near-field communication
NPD New product development
RBV Resource-based view
SH Smart home
SMEs Small and medium enterprises
VPC Value proposition canvas
xi
List of Figures
Introduction
Fig. 1 Overview of the book structure . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Theoretical Background
Fig. 1 Overview on components of business models from literature.
Adapted from Krumeich et al. (2012) . . . . . . . . . . . . . . . . . . . . . .. 24
Fig. 2 Perspective on business models a result of strategic choices.
Adapted from Casadesus-Masanell and Ricart (2010, p. 204)
and Gassmann et al. (2016, p. 18) . . . . . . . . . . . . . . . . . . . . . . . .. 26
Fig. 3 The activity system design framework. Source Zott and Amit
(2010) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 27
Fig. 4 The RCOV framework. Source Demil and Lecoq (2010) . . . . . . .. 28
Fig. 5 Identified phases (synthesis) of business model innovation
(own representation). Note Italic font indicates implicit mention
in the original source . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 34
Fig. 6 IoT technology stack (based on Porter and Heppelmann
2014, p. 7; Wortmann and Flüchter 2015, p. 223) . . . . . . . . . . . .. 38
Fig. 7 Value creation layer (based on Fleisch et al. 2015) . . . . . . . . . . .. 41
IoT Business Model Innovation and the Stage-Gate Process

Fig. 1 Two decision points and their occurrence on the
BMI timeline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
The Evaluation Aspect of Digital Business Model Innovation

Fig. 1 Overview of the search process (own representation) . . . . . . . . . . . 72
Fig. 2 Logic and criteria of evaluation research articles
(own representation) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
The Business Model Pattern Database: A Tool for Systematic BMI

Fig. 1 Taxonomy development method
(Nickerson et al. 2013, p. 345) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
xiii
xiv List of Figures
Fig. 2 Development of dimensions for the business model

pattern taxonomy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Fig. 3 Dimensions, characteristics, and number of business
model patterns per characteristic . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
A Business Model Perspective on Innovation Susceptibility

Fig. 1 Phases of the business model innovation process. Adapted
from Frankenberger et al. (2013) . . . . . . . . . . . . . . . . . . . . . . . . .. 149
Fig. 2 General methodological approach . . . . . . . . . . . . . . . . . . . . . . . .. 151
Fig. 3 Action design research to design, development, and valuation
of the artifact. Adapted from Sein et al. (2011) . . . . . . . . . . . . . .. 153
Fig. 4 Strategic perspective on innovation potential in the market . . . . .. 161
Profit Driving Patterns for Digital Business Models

Fig. 1 The research design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168
Fig. 2 Procedure of data analysis based on Creswell’s data analysis
spiral (1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169
Customer Surveys as a Quantitative Evaluation Tool for Digital BMI

Fig. 1 The Internet of Things-products-services logic. Adapted
from Fleisch et al. (2015) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180
Fig. 2 Smart Home BM adapted from Tesch (2016) and
Osterwalder et al. (2010) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190
Fig. 3 Identification of solution features and attributes . . . . . . . . . . . . . . . 192
Fig. 4 Viable business models for addressing Customer Segments
1 and 2 in the schemed by value network diagrams
(Bilgeri et al. 2015) (Simplified) . . . . . . . . . . . . . . . . . . . . . . . . . . . 199

Model Innovation
Fig. 1 Design, development and evaluation of the artifact: Action Design
Research (ADR). Adapted from Sein et al. (2011) . . . . . . . . . . . . . 215
Fig. 2 Overview of the business model. Adapted from
Osterwalder et al. (2010) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219
Fig. 3 Driving factors from PESTE analysis for the smart home case,
illustrated by the impact uncertainty grid (Schoemaker and
van der Heijden 1992) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221
Fig. 4 Using correlations between driving factors to identify scenario
dimensions (simplified) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222
Fig. 5 Key scenarios for the smart home platform and identified
key success factors (KSF) to differentiate from potential
competitors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222
List of Figures xv
Fig. 6 Stakeholder network diagram (Bilgeri et al. 2015) for the

“lifestyle” (left) and the “hidden revenue” (right) smart home
scenario . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223
Implications—An Integrative Framework for IoT Business

Model Innovation
Fig. 1 The integrated framework for IoT business model innovation . . . . 246
List of Tables
Introduction
Table 1 Overview of studies included in this book . . . . . . . ........... 9
Table 2 Overview of research design of studies included
in this book . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........... 12
Table 3 Overview of anticipated contributions to research . ........... 14
Table 4 Overview of anticipated contributions to practice . ........... 15
Table 1 Definitions of the term “business model” . . . . . . . . . . . . . . . . . .. 21
Table 2 Perspectives on business models . . . . . . . . . . . . . . . . . . . . . . . .. 23
Table 3 Overview on components of business models
(Osterwalder et al. 2010, pp. 20–21) . . . . . . . . . . . . . . . . . . . . .. 25
Table 4 Definitions of business model innovation . . . . . . . . . . . . . . . . . .. 31
Table 5 Summary of the identified 21 IoT business model patterns
by Fleisch et al. (2015) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 41
IoT Business Model Innovation and the Stage-Gate Process

Table 1 List of case studies and interview partners . . . . . . . . . . . . . . . . . . 57
Table 2 Two main decision points and underlying criteria . . . . . . . . . . . . 60
The Evaluation Aspect of Digital Business Model Innovation

Table 1 Logic and criteria of evaluation research articles
(own representation) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
The Business Model Pattern Database: A Tool for Systematic BMI

Table 1 Elements of a business model . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Table 2 Definitions of business model patterns . . . . . . . . . . . . . . . . . . . . . 95
Table 3 Research design overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Table 4 Original sources of business model patterns . . . . . . . . . . . . . . . . . 98
xvii
xviii List of Tables
Table 5 Reviews of business model pattern literature . . . . . . . . . . . . . . . . 105

Table 6 Usage of the pattern database during the business model
innovation process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
A Business Model Perspective on Innovation Susceptibility

Table 1 Overview on activities following a design science research
approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154
Table 2 Detailed overview of the innovation levers . . . . . . . . . . . . . . . . . 156
Profit Driving Patterns for Digital Business Models

Table 1 Leading questions for the interview . . . . . . . . . . . . . . . . . . . . . . . 168
Table 2 Summary of the identified 21 IoT patterns including
the nine profit driving patterns . . . . . . . . . . . . . . . . . . . . . . . . . . . 170
Customer Surveys as a Quantitative Evaluation Tool for Digital BMI

Table 1 Phases of digital BMI processes (based on Tesch
and Brillinger 2017, p. 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182
Table 2 Overview on publications applying conjoint analysis in context
of business model innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186
Table 3 Conjoint Survey Results Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . 194
Table 4 Overview of business model choice options . . . . . . . . . . . . . . . . . 200

Model Innovation
Table 1 Overview on activities following a Design Science Research
approach based on Peffers et al. (2007) . . . . . . . . . . . . . . . . . . . . 216
Table 2 Overview of the key steps of the scenario-planning artefact . . . . 218
Findings and Results

Table 1 Integrated findings of Study 1 and 2: framework to innovate
business models in the era of the internet of things (IoT) . . . . . . 236
Table 2 Integrated findings: the roles of BM evaluation methodologies
in the era of the IoT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240
Implications—An Integrative Framework for IoT Business Model

Innovation
Table 1 Overview of major contributions to research . . . . . . . . . . . . . . . . 244
Table 2 Features of the phases of the integrative IoT business model
innovation framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248
Part I
Foundations
Part I of this cumulative dissertation comprises two chapters. It begins with an

introduction of the emerging economic paradigm of the Internet of things (IoT) and
the importance of a firm’s ability of superior business model innovation (BMI).
Subsequently, the theoretical background gives an overview of the relevant ter-
minologies and provides the reader with existing scientific research for the intended
research contribution.
Introduction
Jan F. Tesch
Keywords Internet of Things · IoT · Business Model · Innovation · Strategy
The following chapter outlines the motivation of the research endeavour, followed by
concrete research gaps and research questions. Afterwards, the introduction provides
an overview of the structure of the book, further elaborates on the research design
and anticipated contributions.
1 Motivation of the Book
In the wake of rapid advances in information technology (IT) and the increasing
pervasiveness of digitalization, today’s companies are facing highly dynamic busi-
ness environments (Porter and Heppelmann 2014). Thereby, the so-called Internet
of Things (IoT) is seen as the major driver of economical and societal changes in the
coming years (Rifkin 2014). A preliminary understanding of the IoT is that ordinary,
everyday-life “things” get equipped with computational capability and internet con-
nectivity (Fleisch 2010). Once purely physical, things become increasingly coupled
with sensors, actuators, computing and connectivity units to become smart (Mio-
randi et al. 2012). Thus, smart things are merging into hybrid solutions that offer a
wide range of services beyond the original physical function (Atzori et al. 2010). In
this sense, the Internet of Things enables a variety of innovative ways of offering
new value propositions to customers, suppliers and partners: in other words, multiple
things combined may offer higher value to stakeholders than the sum of their parts.
J. F. Tesch (B)
University of Göttingen, Göttingen, Germany
e-mail: mail@jan-tesch.de
© Springer Nature Switzerland AG 2019 3

J. F. Tesch (ed.), Business Model Innovation in the Era of the Internet of Things,
Progress in IS, https://doi.org/10.1007/978-3-319-98723-1_1
4 J. F. Tesch
Hence, especially with costs for computing and connectivity declining tremendously,
the Internet of Things represents a novel economic paradigm (Atzori et al. 2010).
Looking at historical situations when potentially disruptive technologies emerged,
firms were challenged to develop new ways of delivering value to customers (Ches-
brough 2007). Thereby, possible impacts of such technologies were not always fully
understood by incumbents. As an illustrative example, companies such as Nokia or
Kodak (Lucas and Goh 2009) as dominant industry leaders experienced a signifi-
cant loss in market share. Despite having developed the superior technology within
their R&D-departments, these incumbents failed to speed up the redesign of value
creation processes to meet customer’s new demand (Markides 2006; Johnson et al.
2008). Hence, in fear of cannibalizing their traditional business, their original value
proposition to the customer became inferior compared to those of emerging mar-
ket entrants. In essence, these incumbents failed to develop an innovative business
model, i.e. a novel “rationale of how an organization creates, delivers and captures
value” (Osterwalder et al. 2010, p. 14).
The development of new innovative business models (BM) in the era of the Internet
of Things is a central challenge for incumbents in several industries (Andersson and
Mattson 2015): facing new fields of competition from non-traditional market players
such as Amazon, Microsoft, IBM or SAP, players in traditional physical industries
are urged to develop new ways of creating and capturing value. Recent research,
such as from Westerlund et al. (2014) and Bilgeri and Wortmann (2017), emphasizes
that once viewed from a purely technological perspective, major enabling factors of
business success are considered increasingly within the orchestration of ecosystems
of partners and multilateral value chains. The emerging paradigm of the IoT leads to a
change from the traditional world of business—characterized by stability and linear
value chains—to an emerging realm of digital business, which is more complex
and distinguished by increasing levels of uncertainty and multilateral value chain
networks. In conclusion, it is emphasized that a lack of profound understanding in
business model innovation (BMI) is the main reason for the failure of IoT projects
(Schneider and Spieth 2013; Andersson and Mattson 2015).
Within science, researchers already widely investigated managerial aspects of
cases of companies struggling in situations when changes in their ecosystems arise
(Yoo 2013; Ghazawneh and Henfridsson 2015). In general, next to technological
advancements as discussed above, changes in political, economic, societal, ecologic
or legislative circumstances (PESTEL) may be cause for a shift in market conditions
fostering the incumbent’s need to innovate its business model (Osterwalder et al.
2010). From a practitioner’s point of view, however, insufficient understanding of
their potential outcomes can lead to “white spots” and thus failing to initiate an
innovation process altering the incumbent’s business model adequately (Christensen
and Overdorf 2000; Lucas and Goh 2009). Ignoring or underestimating the inherent
innovation potential of such new business opportunities may not only imply a missed
growth opportunity, but also a threat to the core business as a leverage point for
competitor firms or new market entrants to disrupt the incumbent’s business model
(Johnson et al. 2008).
Introduction 5
In sum, the emergence of the Internet of Things represents a new economic

paradigm to corporations and start-ups, which bears the potential to offset tradi-
tional rules of competition among several markets and industries. This challenges
incumbents to initiate and execute adequate processes to change their way of doing
business, i.e. the innovation of an incremental, radical, or even disruptive new busi-
ness model. Thereby, both researchers and practitioners emphasize a gap in the aspect
of evaluation in business model innovation projects (Burkhart et al. 2011; El Sawy
and Pereira 2013; Veit et al. 2014). In contrast to ordinary new product develop-
ment (NPD), where there are several established methodologies for dealing with
these topics (Bucherer et al. 2012), the IoT has enormous impacts on the creation
of value, and the interplay between business partners becomes increasingly com-
plex (Westerlund et al. 2014; Porter and Heppelmann 2014). Thus, within the era of
the Internet of Things, the validity of acknowledged means of evaluation stemming
from traditional strategic management, i.e. tools, methodologies and procedures, are
questioned under this newly arising economic paradigm.
Motivation of the dissertation project is to shed light upon the role of tools and
methodologies that might foster the evaluation aspect of IoT business model inno-
vation. In a scientific manner, the book aims to investigate the characteristics of
how firms may systematically innovate their business models subject to the arising
prerequisites as schemed above. To make a significant contribution, the dissertation
considers Casadesus-Masanell and Ricart’s (2010) theoretical perspective on busi-
ness models, who state that the innovation process consists of strategic and tactical
choices. Drawing from this perspective bears the opportunity to elaborate an inte-
grative framework to shed light on the role of evaluation within distinct phases of
business model innovation processes in the era of the Internet of Things. For practi-
tioners, particularly for professionals in business model innovation, the dissertation
project seeks to provide guidance to when and how decisions in a BMI process are
best made. Particularly, with the elaborated tools and methodologies supporting the
decision making, the dissertation project endeavors to enable professionals to con-
tribute to a firm’s success with an enhanced ability to evaluate and predict future
business models within an innovation project.
2 Research Gaps and Research Questions
Within existing research on business model innovation, three previously identi-

fied research streams are bearing significant opportunities to contribute to research
(Schneider and Spieth 2013): (1) enablers of business model innovation, (2) pro-
cess and elements of business model innovation, and (3) effects of business model
innovation (Schneider and Spieth 2013). The endeavor of the book is to shed light
on the role of tools and methodologies within business model innovation processes,
particularly, the second stream emphasizes the scientific field of BMI research cor-
responding to the outlined motivation stemming from the emergence and influence
of the new economic paradigm around the Internet of Things.
6 J. F. Tesch
Within the second research stream (Schneider and Spieth 2013), previous research
mainly dealt with the qualitative exploration of the overall process of BMI. In particu-
lar, the continuous discovery-driven and learning-oriented characteristics were inves-
tigated in depth (Chanal and Caron-Fasan 2010; Demil and Lecocq 2010; McGrath
2010; Smith et al. 2010; Sosna et al. 2010). However, key aspects such as the iden-
tification of business opportunities for the initiation of BMI or its design and the
evaluation of future viability, remain largely unclear (Veit et al. 2014). Several stud-
ies, such as from Yunus et al. (2010) or Massa and Testa (2011) analyzed BMI within
particular markets and industries. However, despite their valuable findings in several
cases, the authors emphasize the importance of pursuing research on BMI in other
contexts to then contribute to generalization attempts. The findings explicitly state
that different types of BMI need to be distinguished. Additionally, the continuation
to seek an enhanced understanding of the possibility to support firms throughout the
process is crucial for further BMI research. This is due to the challenging nature of
business model innovation both scholars and practitioners are facing.
Schneider and Spieth (2013, p. 23) outline three starting points for a better under-
standing of the process and elements of business model innovation for future research
in this field:
a. “What determines the process and elements of business model innovation in
specific contexts?”
b. “Which general types or forms of business model innovation can be identified?
How do distinct forms of business model innovation impact on the underlying
process?”
c. “How can firms be supported in conducting business model innovation in terms
of tools and methods?”
In a nutshell, “providing a deeper understanding of the process of business model
innovation and in particular concerning the elements comprising business model
innovation, the main objective of further research in this field should be to pro-
vide analytical support for business model innovation’s discovery-driven process”
(Schneider and Spieth 2013). In this sense, the emergence of the IoT paradigm depicts
a new ‘type’ of business model innovation (Bilgeri et al. 2015). However, very recent
studies have already provided initial insights on the influence of the Industrial Internet
of Things (IIoT) on existing business models of manufacturing incumbents (Arnold
et al. 2016), or types of IoT business models (Laudien and Daxböck 2016b), large-
scale insights on the innovation process (a) and support methods (c) remain largely
unclear.
In terms of the research field of the BMI process and elements in the specific con-
text of the IoT (a), the aspect of decision-making as recurring characteristics depicts a
promising field of analysis. Other than existing approaches to derive a process model
for general BMI, such as already undergone by, e.g., Teece (2010), Osterwalder et al.
(2010), Frankenberger et al. (2013) or Laudien and Daxböck (2016a), an explicit
view on key decisions in IoT may serve as a separator between different ‘stages’ of
evaluation. Learnings from the decision behavior itself may then draw insights on
key factors and aspects, which in turn allows for a derivation on requirements for
Introduction 7
means supporting the decision making. An integrative framework to structure the

process of the new type of IoT business models helps both scholars and practitioners
to understand how “new network- and activity system–based value creation mecha-
nisms” can be utilized “to achieve the sources of competitive advantage” (Zott et al.
2011). Hence, the research question of Part II is derived as follows:
How can business models be developed and innovated systematically in the era
of the Internet of Things?
With insights on the first research question at hand, the dissertation then allows
for a better understanding of the systematic applicability and use of existing BMI
tools and methodologies in the different stages of IoT business model innovation (c).
Structured literature reviews (Burkhart et al. 2011; Veit et al. 2014; Wirtz et al. 2016)
indicate that only some publications deal with the aspect of evaluating business mod-
els as a part of an innovation process. Corresponding to the research question in Part
II, several researchers highlight the importance of continuous business model inno-
vation (Frankenberger et al. 2013) versus a more linear approach (Bilgeri et al. 2015).
Analyzing the various aspects of business model innovation from a practitioners’ per-
spective (Osterwalder et al. 2010) and reviewing theoretical literature concerning the
innovation process outlined (Zott and Amit 2010; Baden-Fuller and Morgan 2010;
Heikkilä and Heikkilä 2013) reveals that research on tools and methodologies has
mostly focused on the descriptive analysis of existing business models or the rather
qualitative ideation of new ones. To date, the explicit role of tools and methodologies,
both within ordinary and the IoT paradigm, remains unclear.
However, despite the few insights on how to systematically elaborate and evalu-
ate business model designs, particularly within the paradigm of the IoT, it is widely
agreed that a rather iterative evolvement of business models is the most appropriate
means of securing the viability of the business model designs (Sosna et al. 2010). A
practical approach to this is outlined by Blank (2013), who argues that rapid proto-
typing and the ability to learn from the customer by offering and testing a minimum
viable product (MVP) already in an early stage is the most appropriate in such com-
plex settings. In this context, the term “effectuation” is coined, meaning to evaluate a
prototype business model “in effect” with customer-centric interaction in a test-bed
(Sarasvathy 2001). In a BMI process, effectual evaluation thus takes place after the
decision on developing a first tangible prototype. On the contrary, analytical means of
evaluation primarily stemming from former economic paradigms following a causal
logic, still bear immense potential for the innovation of business models (Bouwman
et al. 2012). However, in light of an integrative framework for IoT business model
innovation, the explicit use and outcomes of causal and effectual means of evaluation
are yet to be explored in greater detail. Furthermore, research widely emphasizes that
novel tools are necessary (Westerlund et al. 2014). The research question for Part III
is therefore formulated as follows:
What is the role of the diverse evaluation tools and methodologies within the
process stages of IoT business model innovation?
8 J. F. Tesch
3 Structure of the Book
The book at hand is written in a cumulative nature to incorporate seven interrelated

studies (see Fig. 1 and Table 1). Thereby, the book is structured in four parts, with the
first and the last framing the context of the innovation of business models in the era of
the Internet of Things. The middle parts of II and III seek to answer the corresponding
research questions as outlined in the previous chapter. Although all studies address
the topic of IoT business model innovation, not all of them were conducted within
the explicit context of IoT projects. Nevertheless, each study contributes to the two
outlined research questions and has important implications for the IoT paradigm. Two
of the studies were published in a scientific journal for Technology and Innovation
Management (TIM), while 2 further studies appear in the proceedings of the European
Conference on Information Systems (ECIS). Two further studies were published in
conference proceedings of the International Society of Professionals in Innovation
Management (ISPIM). Currently, another study is under review.
Part I: Foundations
1 Introduction 2 Theoretical Background
Part II: Decisions and Evaluation Tools in IoT Business Model Innovation
1 IoT Business Model Innovation and the Stage-Gate process: An exploratory analysis (Study 1)
2 The Evaluation Aspect of digital Business Model Innovation: A Literature Review on Tools and
Methodologies (Study 2)
Part III: Studies on the Roles of Tools and Methodologies in IoT BMI
Drawing Analogies as an effectual evaluation Customer surveys Scenario Planning
tool for BMI as a quantitative as a causal
evaluation tool for evaluation tool for
1 The Business Model Pattern Database – A IoT BMI IoT BMI
Tool for Systematic Business Model Innovation
(Study 3) 4 The Role of 5 Discovering the
Quantitative Role of Scenario
3 Profit Driving Evaluation in Digital Planning as an
2 A Business Model
Patterns for Digital Business Model Evaluation
Perspective on
Business Models Innovation: An Methodology for
Innovation
(Study 5) Exploratory Business Models in
Susceptibility (Study 4)
Analysis (Study 6) IoT (Study 7)
Part IV: Contributions
1 Findings and results 2 Implications 3 Concluding Remarks
Fig. 1 Overview of the book structure

Introduction 9
Table 1 Overview of studies included in this book

No Outlet Status Ranking Chapter Core research Contribution
questions
#1 International Published B II.1 What are the Identification
Journal of main gates of key
Innovation currently decisions and
Management applied in IoT decision
business model criteria in
innovation? business model
What criteria innovations
are applied to
make decisions
at each gate?
#2 European Published B II.2 What is the Overview and
Conference on status quo of categorization
Information research in of existing
Systems 2017 business model tools and
evaluation and methodologies
corresponding for digital
tools? business model
What roles do innovation to
evaluation tools develop a
and typology
methodologies Elaboration of
generally play an integrative
in digital framework to
business model evaluate
innovation? business
models in IoT
innovation
projects
#3 International Published B III.1 What are Elaboration of
Journal of recurring the first
Innovation archetypes of structured,
Management successful holistic
business model database of
innovations? business model
What patterns as a
implications tool for
can be drawn systematic
from analogies business model
for systematic innovation
business model
innovations?
#4 ISPIM Published n/a III.2 How can Provision of a
Innovation ‘innovation strategic-choice
Forum 2017 susceptibility’ view on
be identified to business model
trigger the innovation and
transformation development of
of business a tool for
models for systematic
incumbents? ideation in
business model
innovation
(continued)
10 J. F. Tesch
Table 1 (continued)
No Outlet Status Ranking Chapter Core research Contribution
questions
#5 ISPIM Published n/a III.3 Which business Categorization
Innovation model patterns of relevant
Summit 2016 directly drive patterns and
the profitability criteria for
of firms? application
#6 International Under review (B) III.4 What is the Methodological
Journal of potential role of approach to
Innovation customer incorporate
Management surveys in IoT conjoint
business model analysis in IoT
innovation and
insights from a
smart home
case
#7 European Published B III.5 What is the Methodological
Conference on potential role of approach to
Information scenario incorporate
Systems 2016 planning in IoT scenario
business model planning in IoT
innovation and
insights from a
smart home
case
Note The ranking is based on the VHB Jourqual 3 ranking. Parentheses indicate that the study is in review
Part I starts with the general motivation stemming from both scientific and prac-
tical aspects for the overall research project. Based on the overall goal towards an
enhanced understanding of IoT business model innovation, theoretical background
information and identified avenues for scholars, two major research questions are
elaborated. The chapter sets the research project in the context of the application
within IoT business model innovation projects. Further, the structure and logical
interrelation of the studies is explained. Subsequently, an overview and classifica-
tion of the studies in the context of the Philosophical sciences is provided. The part
closes with an overview on anticipated contributions to science and practice.
With a total of 7 studies, Parts II and III depict the core of the cumulative book. As
Schneider and Spieth (2013) outline, research in business model innovation may be
located at the intersection of Information Systems (IS), Technology and Innovation
Management (TIM) and Strategic Management. The studies in these parts were pub-
lished in outlets of corresponding research communities. Part II answers the research
question on how business models may be systematically developed and innovated in
the era of the Internet of Things. In order to contribute, Study 1 elaborates on evi-
dence of several IoT cases on decision making and decision points. In that manner,
Study 1 seeks to retrospectively analyze how decisions were made, what facts drove
the decision making and what role means of evaluation played to prepare a deci-
sion. Study 2 reviews the state of existing tools and methodologies and investigates
on their use and outcomes within past projects. Combined with the insights gained
Introduction 11
through Study 1, an enhanced understanding on how tools and methodologies are

used within IoT business model innovation is fostered. Hence, several stages of IoT
business model innovation process are identified, with a clear implication on how
tools may effectively and efficiently contribute to a robust business model design.
Furthermore, identified avenues for further research guide the path for the subsequent
part of the book.
Based on these findings, which sets a solid foundation to discover the different
aspects of evaluation means, Part III represents a systematic endeavor to elaborate
and test novel tools. To answer the research question on the role of the diverse eval-
uation tools and methodologies within the process of IoT business model innovation
as outlined above, three dominant modes of business model evaluation are identi-
fied: effectual evaluation, quantitative (causal) and qualitative (causal). For each of
these modes, a corresponding tool is elaborated and tested in real-world IoT inno-
vation projects. The explorative and iterative use, testing, validation and redesign of
tools and methodologies lead to a robust functionality the invented tool/methodology
provides as a clear result of each Study. In terms of effectual evaluation, Part III.1
anticipates to investigate on business model patterns as a means of systematically
drawing analogies from past BMI projects. Thereby, Study 3 invents the first holistic
database of identified business model patterns, and further proposes a taxonomy in
order to structure the field. Based on these groundworks, Study 4 elaborates on BMI
levers, as a sorting dimension of patterns from a strategic choices view (Casadesus-
Masanell and Ricart 2010), to investigate the role of drawing analogies in an early
analytical stage of IoT BMI. Study 5 investigates the role of patterns in a stage of IoT
projects, which has the overall aim to scale and roll-out the business model into at
least one market. Overall, the three studies of Chap. III.1 combined depict a holistic
view on the use of effectual means throughout all stages of an IoT business model
innovation project. Chapter III.2 investigates on the role of quantitative causal means
by being the first of its kind to applying conjoint analysis to an analytical strategic
choices stage of BMI within a single case Study (study 6). For the investigation on
qualitative causal means within Chap. III.3, study 7 elaborates a scenario planning
tool with an action design research approach and sheds light upon its use based on
evidence from 3 IoT innovation projects.
Finally, Part III closes the book by reflecting the theoretical findings and contribu-
tions of the combined studies within the IoT paradigm. Subsequently, an integrative
framework is elaborated in order to make the findings directly accessible to practi-
tioners and business model innovation professionals. The book ends with concluding
remarks, considering limitations and avenues for future research.
4 Research Design
The field of research on business models and business model innovation is of interdis-
ciplinary nature, as it may be located in the intersection of Information Systems (IS),
Technology and Innovation Management (TIM) and Strategic Management (Zott
et al. 2011). Hence, in order to adequately respond to the research questions, it is
12 J. F. Tesch
necessary to consider a variety of research designs and methods (Veit et al. 2014;
Wirtz et al. 2016). Furthermore, as the (sub-) research questions of the ongoing chap-
ters of the book sequentially build upon the findings of each other, the data collection
for providing evidence was required to be completed individually for each study. An
overview of the research design is given in Table 2.
In general, next to the choice of an adequate methodology, a research approach
encompasses the epistemological positioning as a further element (Becker et al.
2003). In this sense, positivistic means that the unit of analysis has a single and
Table 2 Overview of research design of studies included in this book

No Research Epistemology Paradigm Methodology Data coll. Data analysis
question(s)
#1 What are the Positivistic Behaviorally Multiple case Expert Coding
main gates oriented study interviews
currently (N 27)
applied in IoT
business model
innovation?
What criteria
are applied to
make decisions
at each gate?
#2 What role do Positivistic Behaviorally Structured Literature Data analysis
evaluation tools oriented literature review, (N with concept
and review 104) matrices
methodologies
play in digital
business model
innovation?
#3 What are Positivistic Design and Mixed-methods Literature Taxonomy
recurring behaviorally approach review (N building
archetypes of oriented 28)
successful
business model
innovations?
#4 What Positivistic Design and Mixed-methods Structured Coding and
implications behaviorally approach secondary data design science
can be drawn oriented collection research
from analogies
for systematic
business model
innovations?
#5 Which business Positivistic Behaviorally Multiple case 2 stage expert Coding
model patterns oriented study interviews (N
directly drive 97 | N 9)
the profitability
of firms?
#6 What is the role Positivistic Design and Single case Cross-sectional Confirmatory
of quantitative behaviorally study conjoint survey case study
customer oriented (N 250) methodology
surveys in IoT
business model
innovation?
#7 What is the role Positivistic Design and Action design User interviews Confirmatory
of scenario behaviorally research (N 8) multiple case
planning in IoT oriented study
business model methodology
innovation?
Introduction 13
objective truth (Hudson and Ozanne 1998), and it is also independent from the
research subject (Carson et al. 2001). On the contrary, interpretivist means that real-
ity is constructed socially and depends on experiences of the researcher. As the
dissertation project seeks to uncover explanations and guidance for scholars and
professionals universally valid in IoT business model innovation, all studies under-
gone are of positivistic nature.
Next to epistemology, two different research paradigms for scientific studies can
be distinguished (Hevner et al. 2004). Behavioral science considers developing and
justifying theories, principles and laws, explaining and predicting how humans are
analyzing and managing tasks, technologies and resources. On the other hand, it
seeks to design science research, which aims at building artifacts providing utility by
transferring knowledge from theory to practice (Wieringa 2009). Within the design
science paradigm, the major objective lies within the analysis on the effectiveness
of the created artifact. As Part II of the dissertation project was designed to set
a knowledge base for further scientific investigations upon business model tools
and methodologies, both Study 1 and 2 follow a behavioral science approach. With
this foundational understanding on causal and effectual logics of evaluation, Part
III continues with exploratory and explanatory research approaches to discover the
role of tools and methodologies. In this part, the research studies underlie both the
design and behavioral oriented paradigm. The evaluation tools are to be created and
designed corresponding to the requirements of the features of IoT business models
(design oriented paradigm), and their use and effectiveness must be observed in
real-world contexts (behaviorally oriented paradigm).
Both research paradigm and epistemology determine the choice of an adequate
research methodology (Becker et al. 2003). In conclusion, the dissertation at hand
combines exploratory and explanatory research methods, i.e. a mixed methods
approach, in order to secure tangible findings into the research inquiry (Venkatesh
et al. 2013). The selected research methodologies thereby stem from social and eco-
nomic sciences and the overall approach follows a pluralistic research design.
5 Anticipated Contributions
Although several researchers have emphasized the importance of BMI in IoT,

research is rare in IS literature (Rai and Tang 2014). In line with research, prac-
titioners also lack understanding of the role of business model innovation in the era
of the Internet of Things, resulting in a slow spread of technological advancements.
To date, only little research has been conducted on how companies might system-
atically innovate business models in this context (Westerlund et al. 2014). Further-
more, the authors claim that novel tools are necessary. In line with that, Zott et al.
(2011) outline that business model research may be located in the intersection of
Information Systems (IS), Technology and Innovation Management (TIM) and
Strategic Management (Table 3).
14 J. F. Tesch
Table 3 Overview of anticipated contributions to research

Main purpose of the Anticipated research
discipline towards business contribution of the book
model research (Zott et al.
2011, p. 23)
Information systems “To describe new gestalts andTo explain gestalts of
internet-based ways of “doingemerging IoT-based business
business” models
To offer typologies or To uncover typologies of
taxonomies” prevailing patterns within
IoT-based business models
Strategic management “To explain new network- and To provide an understanding
activity system–based value on cause and effects of
creation mechanisms and systematic value creation
sources of competitive within the economic paradigm
advantage” of the IoT
To explain how companies
may systematically innovate
business models in order to
develop competitive
advantages and to capture
value thereof
Technology and innovation “To understand how To provide insight how BM
management technology is converted into tools and methodologies may
market outcomes” help to convert new
technologies into
differentiating competitive
advantages
Structured literature reviews from an IS point of view (Burkhart et al. 2011;

Veit et al. 2014) indicate that only some publications deal with evaluating business
models as a part of an innovation process. Major research gaps in this field have
been identified, as there are “limited insights on criteria and metrics for an appro-
priate evaluation of business models.” Furthermore, no “tool for the management
of business model can be found so far, neither for visualization, evaluation or sim-
ulation purposes nor as a holistic approach” (Burkhart et al. 2011, pp. 16–17). In
a nutshell, “understanding, explaining, predicting, and designing IT-based business
models holds immense contributions to both research and the business community”
(Veit et al. 2014, p. 50). Correspondingly, the dissertation project aims to contribute
by describing new gestalts of emerging IoT-based business models.
Within strategic management, there is insufficient testimony regarding the valid-
ity of business model evaluation (D’Urso et al. 2006; Demil and Lecocq 2010). At
the same time, the importance of identifying the target customer and a segmenta-
tion concerning its value propositions is emphasized as a way to gain more precise
assumptions for the business case calculation as a decision basis for management
(Zott and Amit 2013). Furthermore, while the target end-customer and value propo-
sitions are also assumed to be crucial for designing partner roles in business model
Introduction 15
Table 4 Overview of anticipated contributions to practice

• To provide an integrative framework considering characteristics of different phases of IoT
business models, prevailing decision points, and major aspects driving decision-making as a
guideline for management
• To review the use, effectiveness, impact and outcome of different types of tools and
methodologies regarding their respective of the different characteristics of IoT business
model innovation processes
• To elaborate and validate novel tools and methodologies specifically designed to enable
consultants and BMI professionals to develop and evaluate novel business models in the
IoT era
development (Hagiu 2014), this task has not yet been sufficiently researched in a spe-
cific IoT context (Lee and Lee 2015). Correspondingly, the dissertation project aims
to contribute with an enhanced understanding on systematic value creation within
IoT ecosystems.
Towards Technology and Innovation Management, iterative trial-and-error eval-
uation is a means of counteracting the lack of information about future market con-
ditions (Sosna et al. 2010). However, the required means for prototype-based eval-
uation are especially high for complex BMI with great uncertainty, particularly in
disruptive BMI’s. Thus, funding for prototypal evaluation may only be released if
management receives some kind of analytical pre-evaluation of the business model
innovation project. This implies the necessity of novel, analytical means of evalua-
tion at an early point in time within the BMI process. However, in both the theory and
practice of innovation processes, it is emphasized that the aspect of analytical assess-
ment of business model ideas is often based on less scrutinized assumptions (Wirtz
et al. 2010). Based on these facts, one can clearly identify a major gap in common
understanding upon timing and means of BMI evaluation, particularly when in the
context of the complexity of overcoming mutual interdependencies (chicken-and-
egg-problem) that come with digitalization and the Internet of Things (Bilgeri et al.
2015). Correspondingly, the dissertation project aims to provide insight on how tools
and methodologies for business modeling can help to convert new technologies into
competitive advantages.
Additionally, the book also aims at contributing to a practitioner’s audience.
Table 4 gives an overview of anticipated contributions to professionals dealing with
business model innovation in the IoT era.
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Jan F. Tesch
Keywords Business model · Business model innovation · Digital transformation

Internet of things · IoT
This chapter provides an overview of the foundations of the underlying theoretical

concepts also drawing from the work of Killus (2016). First, the terminology around
business models is briefly introduced. Next, background on business model innova-
tion—as a transformational perspective on business models—is outlined, followed
by the paradigm of the Internet of Things (IoT). The chapter concludes by laying out
a synthesized understanding.
1 Business Models
The terminology around business models (BM) emerged as buzzwords in various

business aspects at the very beginning of the 21st century (Magretta 2002). A com-
mon high-level understanding of business models is their function as an intermedi-
ating factor delimiting (corporate) strategy and processes (Veit et al. 2014). Having
their origins primarily in the e-business sector (DaSilva and Trkman 2014), business
models’ importance to both scholars and practitioners has been rising precipitously
ever since the topic emerged. The terminology was, therefore, particularly shaped
by practical investigations concerning the core logic of how (dot-com) companies
do business (Magretta 2002).
J. F. Tesch (B)

20 J. F. Tesch
The term has since been subjected to broader scientific scrutiny (Al-Debei et al.
2008). However, the research into this nascent concept is still in its early stages
(Landau et al. 2016). Despite this increasing attention from the scientific community,
no consensus on a universally valid definition has been reached. Nonetheless, as Wirtz
et al. (2016) suggest, the understanding of scholars and practitioners appears to be
converging, especially in recent years. In the following section, the state of business
model research is outlined to provide a broad overview of the theoretical foundations
underpinning business models. Several researchers from various fields have proffered
numerous definitions. Using these definitions as a foundation, this chapter outlines
several schools of thought (Gassmann et al. 2016) which were developed by various
researchers based on their scientific perspectives.
1.1 Definitions
Table 1 gives an overview of definitions from the most influential scientific publica-
tions in the field of business models.
Several similarities and overlaps exist among the various definitions, which can
often be traced back to the different perspectives on business models (Gassmann
et al. 2016) of different research groups. As such, the 2010 special issue on business
models in Long Range Planning, a revived journal edited by Charles-Baden-Fuller,
noted a milestone of a converging scientific consensus concerning business model
terminology. The different perspectives are discussed in the following subsection.
1.2 Perspectives on Business Models
Various research contributions to the phenomenon of business models were often

a result of differing perspectives on the terminology itself. The initial focus of
researchers mainly was on viewing business models from a strategy perspective—The
role of business models was perceived as an intermediator between strategy and
business processes (Magretta et al. 2002; Veit et al. 2014). Further advancements in
technology, such as digitalization, also caused academics to consider other perspec-
tives, as the phenomenon’s increasingly complex aspects could not be adequately
explained with only the strategic view (Chesbrough 2007). Consequently, the per-
spective of viewing business models as a set of components has emerged as the
most acceptable by practitioners (Krumeich et al. 2012), especially since it aims
to make the concept more tangible and thus comprehensible. Having a particular
understanding of business models as a system of activities (Zott and Amit 2010)
or abstracted cognitive models (Baden-Fuller and Morgan 2010) plays an important
role for scientists. Table 2 provides an overview over the various perspectives.
Theoretical Background 21
Table 1 Definitions of the term “business model”

Author(s) Business model definition
Al-Debei and Avison (2010), p. 373 “[…] 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”
Amit and Zott (2010), p. 216 Business models are “a system of
interdependent activities that transcends the
focal firm and spans its boundaries”
Baden-Fuller and Morgan (2010), p. 168 A business model is a ‘model’ or the ‘logic’ of
how firms do business: “Business models are
not recipes or scientific models or scale and
role models. they play ANY - or all - these
roles, often at the same time”
Casadesus-Masanell and Ricart (2007), p. 15 “A business model […] is a reflection of the
firms realized strategy”
Chesbrough and Rosenbloom (2002), p. 529 “[…] heuristic logic that connects technical
potential with the realization of economic
value”
Demil and Lecocq (2010), p. 233 “[…] the logic of the firm, the way it operates
and how it creates value for its stakeholders”
Hedman and Kalling (2002), p. 154 “[…] Model integrates firm-internal aspects
that transform factors to resources, through
activities, in a structure, to products and
offerings, to market”
Johnson et al. (2008), p. 52 “[…] consists of four interlocking elements,
that, taken together, create and deliver value”
Morris et al. (2005), p. 728 “A business model is a concise representation
of how an interrelated set of decision variables
in the areas of venture strategy, architecture,
and economics are addressed to create
sustainable competitive advantage in defined
markets”
(continued)
22 J. F. Tesch
Table 1 (continued)
Author(s) Business model definition
Osterwalder et al. (2005), p. 10 “A business model is a conceptual tool that
contains a set of elements and their
relationships and allows expressing the
business logic of a specific firm. It is a
description of the value a company offers to
one or several segments of customers and of
the architecture of the firm and its network of
partners for creating, marketing, and delivering
this value and relationship capital, to generate
profitable and sustainable revenue streams”
Teece (2010), p. 173 “A business model articulates the logic. […]
defines how the enterprise creates and delivers
value to customers, and then converts
payments received to profits”
Timmers (1998), p. 2) “[…] an architecture for the product, service
and information flows, including a description
of the various business actors and their roles;
and a description of the potential benefits for
the various business actors; and a description
of the sources of revenues”
The following subsections provide a more detailed description of the seven prevail-
ing perspectives on business models. The section draws heavily upon the publication
Exploring the Field of Business Model Innovation by Oliver Gassmann et al. (2016).
1.2.1 (Value-) Components Perspective
Discussion about which components are the most suitable for varying types of busi-
ness models has dominated the content of scientific publications in recent years.
Despite healthy discussion, the components perspective is the most prevailing and
widespread in both research and managerial practice. To design and evaluate busi-
ness models, the importance of understanding the underlying components of business
models is essential, since they foster a holistic and interlinked illustration. Business
model components have causal relations (Hedman and Kalling 2002) and should
be “designed with reference to each other” (Teece 2010). Some researchers view
value as the most essential component in a business model. Keen and Williams
(2013) in particular conclude that the notion of value is more important than the
business model itself. The emergence of the digital economy is leading to new forms
of networked value creation (Hedman and Kalling 2002; Zott et al. 2011), which
increases the importance of this interlinked understanding of value components. A
series of studies from holistically analyzed scientific literature has highlighted the
causal interrelations between the various components. Figure 1 provides an overview
of the components and subcomponents identified in various scientific articles.
Table 2 Perspectives on business models

Perspective School Description
(Value-) components University of Lausanne “A business model is the
rationale how a company
creates, delivers and captures
value”
Technology University of California, “A business model is a way to
Berkeley commercialize novel
technology”
Strategic choices Harvard Business School “A business model is a result
of strategic choices”
Activity-system IESE Business School, “A business model is a set of
Wharton School of Business interdependent activities
spanning firm boundaries”
Process IAE Business School “A business model is a
dynamic process of balancing
revenue, costs, organization,
and value”
Cognitive Cass Business School “A business model is a
‘model’ or the ‘logic’ of how
firms do business”
Duality London Business School “A business model does
coexist with competing
business models and requires
ambidextrous thinking”
Adapted from Gassmann et al. (2016), pp. 7–37
In more recent research, scholars have focused on four main pillars to characterize
the main components of a business model (Wirtz et al. 2016): value proposition, value
creation, value delivery, and value capture. Despite this more recent development,
Osterwalder et al. (2005) developed a sort of “least common denominator” framework
almost a decade ago. This, in managerial practice, often refers to the four dimensions
Who, What, How, and Why of a business model, which has proved to be the most
efficient way to communicate a projected business model design idea (Gassmann
et al. 2014). Furthermore, especially in managerial practice, the book Business Model
Generation and the Business Model Canvas of Osterwalder et al. (2010) has emerged
as a de facto standard for the representation of business models. Given this prevailing
trend, the authors suggest breaking down the four value pillars into a total of nine
subcomponents.
Table 3 provides a brief overview.
24 J. F. Tesch
Zu Knypehausen-Aufseß and Meinhardt (2002)

Chesbrough and Rosenbloom (2002)
Dubosson-Torbay et al. (2004)
Alt and Zimmermann (2001)
Al -Debei and Avison (2010)

Hedman and Kalling (2003)
Bieger and Reinhold (2011)

Linder and Cantrell (2000)
Pateli and Giaglis (2003)
Demil and Lecocq (2010)

Osterwalder et al. (2005)
Osterwalder et al. (2010)

Shi and Manning (2009)
Afuah and Tucci (2001)
Petrovic et al. (2001)
Johnson et al. (2008)

Haaker et al. (2004)
Morris et al. (2005)

Bieger et al. (2002)
Shafer et al. (2005)
Kallio et al. (2006)
Onetti et al. (2010)

Mahadevan (2000)
Girmscheid (2006)
Richardson (2008)
Slywotzky (1996)
Schweizer (2005)
Bouwman (2003)
Aziz et al. (2008)
Lambert (2008)
Stähler (2001)
Ballon (2008)
Yip (2004)
Wirtz (2001)
Value Capturinng Model
Customer and Market Segment
Communication and distribution
Channel
Customer Relationship
Value Offering Model

Value Proposition
Business Model Components
Product and Service Offering

Competitive Model
Competitive Advantage
Value Creation Model
Organizational Structure
Resource Model
Competence Model
Activities and Processes
Cooperation Model
Structure and Position
Coordination
Maturity
Financial Model
Pricing Model
Funding Model
Revenue Model
Cost Model
Profit Model
Distribution Model
Fig. 1 Overview on components of business models from literature. Adapted from Krumeich et al.
(2012)
1.2.2 Technology Perspective
Researchers of the technology-driven school refer to business models as a support-

ing concept to commercialize technological innovations (Gassmann et al. 2016).
However, despite contributing to the same stream of research, these researchers dif-
fer in the theoretical foundation of their analysis. Chesbrough focuses on analyzing
open business models (Chesbrough 2007) and spin-off strategies (Chesbrough and
Rosenbloom 2002), using Xerox as a prime example. This approach, in particular,
analyzes organizational aspects of the focal company, and focuses on the necessity of
overcoming dominant industry logic as the main barrier to business model adoption.
Teece (2010), on the other hand, initiated a broader discussion concerning dynam-
ics in business models. This approach considers the dynamic capabilities of firms
(Teece and Pisano 1994) as a differentiating factor in fast changing environments
(Leih et al. 2014). Hence, both authors adapt different approaches to the concept
of business models: Henry Chesbrough, by focusing on organizational matters, and
Table 3 Overview on components of business models (Osterwalder et al. 2010, pp. 20–21)
Components Subcomponents Description
Value proposition (what?) Value propositions “Gives an overall view of a
company’s bundle of products
and services”
Value creation (how?) Key partners “Some activities are
outsourced and some
resources are acquired outside
the enterprise”
Key activities “Number of key activities
performed by key resources”
Key resources “Key resources are the assets
required to offer and deliver
the previously described
elements”
Value delivery (who?) Customer segments “An organization serves one or
several customer segments”
Customer relationships “Customer relationships are
established and maintained
with each customer segment”
Channels “Value propositions are
delivered to customers through
communication, distribution,
and sales channels”
Value capture (why?) Revenue streams “Revenue streams result from
value propositions
successfully offered to
customers”
Cost structure “The business model elements
result in the cost structure”
David J. Teece, by adopting the theory of dynamic capabilities. The technology-

driven perspective closely builds upon the consideration of components (see previ-
ous subchapter), whereas Chesbrough and Rosenbloom (2002, p. 534) argue a firm’s
business model should consider six aspects to capture value from technological inno-
vations: the value proposition, the relevant market segment, a value chain, both cost
structure and profit potential, a value network, and a competitive strategy.
1.2.3 Strategic-Choices Perspective
Particularly in the early stages of the emerging research body around business mod-
els, scientists emphasized the definition of business models to analyze the widening
gap in the understanding of the delineation between (corporate) strategy and business
processes (Magretta 2002). To contribute to the ongoing debate about how business
models are interlinked, the research group of Casadesus-Masanell and Ricart (2010)
26 J. F. Tesch
Fig. 2 Perspective on business models a result of strategic choices. Adapted from Casadesus-
Masanell and Ricart (2010, p. 204) and Gassmann et al. (2016, p. 18)
suggested positioning the ‘business model phenomenon’ between strategy and tac-
tics. The authors emphasize not only the lack of a clear distinction, but also the fact
that most managers are confused about these concepts and that academics should
strengthen research efforts in order to contribute to the clarification of the business
model concept. Figure 2 gives an overview of the theoretical concept of the Strategic-
Choices perspective.
In general, the Strategic-Choices perspective argues that the ‘business model phe-
nomenon’ results from the focal company’s strategic decisions. The business model
is interpreted as a dynamic view of strategy to achieve the business goals (Al-debei
et al. 2008) and, therefore, represents an operationalized “reflection of the firm’s
strategy” (Casadesus-Masanell and Ricart 2010, p. 203). Once the business model
is established, a firm makes tactical decisions within the boundaries of the chosen
business model. Many researchers have sought to interpret business models from a
strategic point (Osterwalder et al. 2010), since the firm’s strategy also serves as a
blueprint for value propositions and value networks (Casadesus-Masanell and Zhu
2013). Strategic business model choices, in this regard, represent the most complex
challenges for the firm’s management.
In sum, the outlined perspective of Casadesus-Masanell and Ricart (2010) argues
that strategic considerations are one of the main triggers for business model innova-
tion. However, the Strategic-Choices perspective implies that in the early stages of
the business model innovation process, the ‘rules of the industry’ are usually not well
defined and/or well understood by practitioners (Gassmann et al. 2016): assessing
potential strategic outcomes dependent on different choice scenarios is very compli-
cated and every alteration of strategy leads to the necessity of a full reassessment of
potential choices at the tactics’ stage. Furthermore, predicting the strategic reactions
Framework provides insight by:

• Giving Business Model Design a language, concepts, and tools
• Highlighting Business Model Design as a key managerial/entrepreneurial task
• Emphasizing system-level design over partial optimization
Design Elements:
Content What activities should be performed?
Structure How should they be linked and sequenced?
Governance Who should perform them, and Where?
Design Themes:
Novelty Adopt innovative content, structure or governance
Lock-In Build in elements to retain business model stakeholders, e.g., customers
Complementarities Bundle activities to generate more value
Efficiency Reorganize activities to reduce transaction costs
Fig. 3 The activity system design framework. Source Zott and Amit (2010)
of the firm’s partners, customers, suppliers, and competitors, i.e. the strategic orches-
tration of the value network to secure a competitive advantage, is extremely difficult.
However, having the capability to make such predictions is central to securing the
future success of an organization.
1.2.4 Activity System Perspective
The activity system perspective argues that business models may be described by
the content, structure, and governance of activities aiming to generate and capture
value by aligning strategic resources. Amit and Zott (2001) attempt to link economic
theories to the value-creation activities of a business, namely transaction cost eco-
nomics, Schumpeterian innovation, the resource-based view (RBV), and strategic
networks. In the Long Range Planning Special Issue 2010, Zott and Amit (2010)
further develop their previous research on the NICE-framework (Fig. 3) (Zott and
Amit 2008). The authors identify the business model concept as a subject “that
transcends the focal firm and spans its boundaries” (Zott and Amit 2010, p. 216),
describing the design elements of an activity system for value creation: the content
(i.e. the activities that have to be performed), the structure (i.e. the interdependencies
and the governance of managing who performs which activities where) (Zott and
Amit 2010). Novelty, Lock-In, Complementarities and Efficiency lay out themes for
the design of the activity system (Zott and Amit 2010, p. 222).
The activity system perspective is a widely accepted theoretical foundation within
business model research. It is based on the idea of integrating aspects from value
chain analysis, the RBV, theory of strategic networks, and transaction cost economics
(Amit and Zott 2001; Zott and Amit 2008, 2010, 2013; Zott et al. 2011; Amit and
Zott 2012).
28 J. F. Tesch
Fig. 4 The RCOV framework. Source Demil and Lecoq (2010)
1.2.5 Process Perspective
The research group of Benoît Demil and Xavier Lecocq has contributed heavily to
business model research with the development of the RCOV framework—resources,
competencies, organization, and value. The authors explain why business models can
be viewed as a research program in economic research (Demil and Lecocq 2010).
Furthermore, both researchers combine the static and dynamic views of business
models (Gassmann et al. 2016). In particular, the authors state that business models
face continuous change both externally and internally and thus are subjected to a
permanent state of disequilibrium. The dynamic capabilities view of business models
continues to play a role in scientific research in this stream of thought (Gassmann et al.
2016). Figure 4 gives a graphical overview of the Process Perspective on business
models.
Demil and Lecoq (2010) emphasize that the relationships between the components
are subject to dynamic change. Changes to the model may occur within or between
the components. Consequently, at any point in time, the business model reflects the
current state of the investigated firm. Therefore, according to Gassmann et al. (2016),
the process perspective combines the static view of business models, “which aims to
describe the configurations of elements producing (or not) good performance, and the
dynamic view, which tries to grasp the ways in which a business model evolves over
time” (Demil and Lecoq 2010, p. 242). Anticipating the “consequences of evolution
in any given component” (p. 230) and reacting accordingly is inevitable to secure
the sustainable viability of the business model.
1.2.6 Cognitive Perspective
Business models may also be analyzed on the basis of model types, comparable to
a living organism and also drawing on other disciplines such as economics, biology,
or physics (Baden-Fuller and Morgan 2010). Developing typologies and taxonomies
in the field of business models is therefore central to this perspective. Baden-Fuller
and Morgan (2010) distinguish between two types of models: scale models and role
models. “Scale models offer representations or short-hand descriptions of things that
are in the world, while role models offer ideal cases to be admired—in these respects
at least, the notion of business models resonates with our experience of models, from
the arts and sciences to ordinary, everyday life” (Baden-Fuller and Morgan 2010,
p. 157).
Within managerial practice, the cognitive perspective has contributed heavily to an
enhanced understanding of the terminology around business models. So-called busi-
ness model patterns, i.e. recurring archetypes of successful business model designs,
have proven to be a good vehicle to communicate the main features of a business
model (Csik 2014). Collections of patterns, i.e. a practical toolset for the opera-
tionalization of the cognitive perspective on business models, have been published
by a variety of researchers (e.g. Abdelkafi et al. 2013; Amshoff et al. 2015; Johnson
2010; Weill and Vitale 2001). Most prominently, the Business Model Navigator, a
collection of 55 patterns as a tool for the recombination of successful business model
designs from the past (Gassmann et al. 2014), has enjoyed particular success, as
the patterns made cognitively perceived taxonomies of business models tangible for
practitioners.
1.2.7 Duality Perspective
The Duality perspective can be traced back to the research group of Christos N.
Markides from the London Business School. The Duality perspective argues that “a
business model does coexist with competing business models and requires ambidex-
trous thinking” (Gassmann et al. 2016, p. 22). Therefore, this perspective focuses on
the organizational dimension of business models. The contribution of this research
group to the area of business models is threefold (Markides and Charitou 2004;
Markides 2006; Markides and Sosa 2013): first, the innovation aspect of business
models is theoretically demarcated from radical product and technological innova-
tions. Second, the Duality perspective considers the aspect of managing dual busi-
nesses. Third, as also Kranz et al. (2016) further investigate, business models are
interlinked with the topic of ambidexterity, which is the capability to balance two
types of learning behavior—exploitation and exploration.
30 J. F. Tesch
2 Business Model Innovation (BMI)
The following chapter provides an overview of the transformational perspective on

business models and the ongoing scientific discussion of the terminology around busi-
ness model innovation (BMI). The research on business model innovation is nascent
and subject to different interpretations, as many aspects have not yet been explored
(Schneider and Spieth 2013). Business model innovation as a concept describes
companies’ efforts related to “the search for new [business] logics of the firm and
new ways to create and capture value for its stakeholders” (Casadesus-Masanell and
Zhu 2013, p. 464). On the one hand, such a definition incorporates the modification,
reconfiguration, or extension of an existing business model. On the other hand, BMI
means the design of fundamentally new business models (Laudien and Daxböck
2016; Markides 2006; Cortimiglia et al. 2016). Table 4 outlines significant literature
and definitions, see also the work of Schallmo (2013) for more detailed description.
A common view of business model innovation analyzes it as a process of find-
ing new ways to create, deliver, and capture value (Baden-Fuller and Morgan 2010;
Casadesus-Masanell and Zhu 2013). To secure sustainable business success, corpo-
rate strategy departments are required to anticipate changes and initiate the search
for novel business models to secure the companies’ sustainable success (Johnson
et al. 2008). Furthermore, business model innovation describes the endeavor to find
significant differentiation versus the competition (Casadesus-Masanell and Ricart
2010) or to unleash substantial growth rates (Wirtz et al. 2010).
2.1 Product Innovation as an Antecedent of Business Model

Innovation
There is an immense amount of rich research on business model innovation in the

related research stream of product innovation or new product development (NPD)
(Chesbrough 2010). It is argued that BMI and NPD are complementary (Chesbrough
2010; Teece 2010). However, business model innovation is viewed more as a source
of securing business success, through achieving higher profits or cost benefits (Amit
and Zott 2012). Thus, business model innovation can be a more holistic concept (Amit
and Zott 2012). Kim and Mauborgne (2004), among the first to develop the concept
of business model innovation, argue that companies have to distinguish between
new markets and present markets. In new markets, they argue, companies should
focus on the value proposition and cost savings in the beginning. In present markets,
companies should seek out new value propositions. A popular idea-to-launch process
widely implemented in the field of NPD and other types of business processes is the
Stage-Gate system (Cooper 2008).
Table 4 Definitions of business model innovation

Author(s) Definitions
Abdelkafi et al. (2013, p. 10) “[…] a business model […] defines the
essential mechanisms that explain how the
enterprise works without going into
operational details. This, business model
innovations change the way companies are
doing their business”
Casadesus-Masanell and Zhu (2013, p. 1) “[…] business model innovation refers to the
search for new logics of the firm and new ways
to create and capture value for its stakeholders;
it focuses primarily on finding new ways to
generate revenues and define value
propositions for customers, suppliers, and
partners”
Johnson (2010, pp. 13, 114) “It [seizing the white space] calls for the ability
to innovate something more core than the core,
to innovate the very theory of the business
itself. I call that process business model
innovation. […] Business model innovation is
an iterative journey”
Lindgarth et al. (2009, p. 2) “Innovation becomes BMI when two or more
elements of a business model are reinvented to
deliver value in a new way. […] BMI can
provide companies a way to break out of
intense competition, under which product or
process innovations are easily imitated…”
Mitchell und Coles (2004, p. 41) “A business model improvement is any
successful change in any business model
element [……] that delivers substantially
enhanced ongoing sales, earnings and cash
flow advantages versus competitors and what
customers can supply for themselves”
Osterwalder und Pigneur (2010, p. 136) “Business model innovation is not about
looking back, because the past indicates little
about what is possible in terms of future
business models. Business model innovation is
not about looking to competitors, since
business model innovation is not about copying
or benchmarking, but about creating new
mechanisms to create value and derive
revenues. Rather, business model innovation is
about challenging orthodoxies to design
original models that meet unsatisfied, new, or
hidden customer needs”
Schneider and Spieth (2013, p. 4) “[Business model innovation] aims at
consciously renewing a firm’s core business
logic rather than limiting its scope of
innovation on single products or services”
(continued)
32 J. F. Tesch
Table 4 (continued)
Author(s) Definitions
Skarzynski und Gibson (2008, p. 111) “At its essence, business model innovation is
about creating fundamentally new kinds of
businesses, or about bringing more strategic
variety into the business you are already in –
the kind of variety that is highly valued by
customers”
Zott et al. (2011, S.16) “In addition to adopting business models to
facilitate technological innovation and the
management of technology, firms can view the
business model itself as a subject of innovation
(Mitchell and Coles 2003)”
2.2 Degree of Radicalness in Business Model Innovation
Several researchers emphasize the distinction between incremental, radical, or even

disruptive business model innovation (e.g. Demil and Lecocq 2010; Bucherer et al.
2012). Radicalness is generally defined as the extent to which a business model
innovation departs from prior business model configurations and can be described
as a “critical variable in the field of innovation”.
Incremental innovations can be defined as minor changes, such as improvements
(e.g., Tidd and Bessant 2005) or extensions (McDermott and O’Connor 2002). Incre-
mental business model development may result in an improved business model, but
it does not alter the core logic of how firms generally do business (Schneider and Spi-
eth 2013). The single effect of an incremental change might even be imperceptible.
Cumulatively, however, their impact may be large (Siguaw et al. 2006).
Radical business model innovation refers to a radical change in the logic how
firms do business (Linder and Cantrell 2000; Chesbrough 2006). Radical innovation
involves the application or development of significantly new elements (McDermott
and O’Connor 2002).
The opportunity-related perspective on business model innovation (Teece 2010;
Amit and Zott 2012) was further developed by Khanagha et al. (2014). The authors
highlight the threatening characteristic of a disruptive business model innovation.
Especially for established incumbents, business model innovation takes place in a
sphere of uncertainty and complexity. The innovation of an incumbent’s business
model could cannibalize the existing business model (Khanagha et al. 2014).
Further perspectives on the degree and types of business model innovation are
outlined in the work of Taran et al. (2015). In addition to radicalness, the authors
emphasize complexity (indicated by number of components of the business model
altered) and reach (company, market, industry or world).
2.3 Frameworks for Business Model Innovation

as Transformational Processes
Knowledge about BMI and its corresponding process phases is limited in scientific
literature (Schneider and Spieth 2013). Very recent studies base their research find-
ings on case study data (Laudien and Daxböck 2016), whereas earlier papers provide
rather anecdotal evidence (Frankenberger et al. 2013). BMI phases in the literature
vary depending on identified number, terminology, set of performed activities, and
sequence. Figure 5 gives an overview of key literature outlining a process phases in
BMI.
When comparing literature on BMI phases, one may condense the phases into
six phases of the business model innovation process: initiation, ideation, prototyp-
ing, validation, implementation, and scaling. The first phases listed refer mostly to
designing the business model, while later phases deal with its realization. The initia-
tion phase analyzes the status quo of the firm and its ecosystem and the areas where
the business model has the opportunity to change. The ideation phase focuses on
the “generation of ideas for potential new business models based on the identified
opportunities” (Frankenberger et al. 2013, p. 10). The prototyping phase refers to a
tangible artifact that may be evaluated and iteratively redesigned in correspondence
with the (end-) customer’s needs and preferences. The validation phase involves the
reduction of uncertainties in the financial and organizational viability of a business
model, in particular by means of trial-and-error learning. Furthermore, the integra-
tion and the architecture of the value chain and the value capture are determined. The
implementation phase includes all activities of the new business model within the
organization. Scaling refers to the full rollout and further growth initiatives necessary
to increase the share in all desired markets.
3 Digital Innovation and the Internet of Things
The following chapter of the thesis provides the theoretical background of the emerg-
ing economic paradigm of the Internet of Things (IoT). A brief overview of significant
scientific research on the digital transformation is given. The second part of chapter
explains the emergence of the IoT paradigm and outlines fundamental technological
characteristics and application domains.
3.1 Digital Innovation and Transformation
Digital technology is at the core of enabling digital innovation and the resulting
transformation of industries and markets (Lyytinen et al. 2015). Thereby, researchers
emphasize the importance of reprogrammability of digital technology, its enabling
34 J. F. Tesch
Imple-
Initiation Ideation Prototyping Validation Scaling
mentation
Amit and Zott, Six Questions about Business

2012, p. 45 Model Innovation
Identification of central Main challenges and

Cavalcante, 2014 Change Initiatives
components and processes solutions
Use next
Identification
stage in BMF
Chesbrough, 2007, of stage of Define and launch business- Business Model
as guideline
pp. 15–17 current model experiments Deployment
for
business
Innovation
Chesbrough, 2010, Experimentation and Trial and error Adaptation and Leading
pp. 356–361 Effectuation / Effectuation Change
Monitoring and
Cortimiglia et al., Capture value through
identifying
2016, pp. 417–427 trial and error
uncertainties
Rational Discovery-
Demil et al., 2015,
ideation or Trial-and-error learning driven
p. 6
design planning
Frankenberger et
Initiation Ideation Integration Implementation
al., 2013, p. 6
Giesen, 2007, p.28- Reconfigur-

32 ing offerings
Laudien and
Monitoring Opening-up Deliberate
Daxböck, 2016a, p. […] Development
[…] […] […]
10
Mitchell and Creat[ion of]
Learn[ing] from best practice
Bruckner Coles, sustainable CEO Leadership
experiences
2004, pp. 19–25 advantages
Osterwalder et al.,
Mobilize Understand & Design Implement Manage
2010, p. 249
Teece, 2010, p. 173 Value Creation and Capture Go to market
Adaption,
Business
Wirtz, 2010, pp. Business Business Model Modifi-
Model
192–259 Model Design Implementation cation and
Operation
Controlling
Note: Italic font indicates implicit mention in the original source
Fig. 5 Identified phases (synthesis) of business model innovation (own representation). Note Italic
font indicates implicit mention in the original source
characteristic to homogenize data, and the self-referential nature (Yoo et al. 2010).
In that context, the terminology of digital innovation refers to the incorporation of
data storing and processing functionalities into originally non-digital products and
even service offerings (Yoo et al. 2010). Digital technologies and digital innovation
are important driving factors for the digital transformation of an industry, since these
lead to diminishing costs of communication and transactions. In that sense, the oppor-
tunities arising from digital innovation enable “the transformation of socio-technical
structures that were previously mediated by non-digital artifacts or relationships into
ones that are mediated by digitized artifacts and relationships” (Yoo et al. 2010, p. 6).
As an outcome of the ongoing digitalization of products and services, the previ-
ously purely physical world converges with the digital world, meaning to transform
analog information into digital information (Yoo et al. 2010). A corresponding theo-
retical construct refers to a layered modular architecture, i.e. the coupling of physical
products with that of the digital hemisphere, which is described as a hybrid to merge
the previously separate worlds (Ghazawneh and Henfridsson 2013). Widely dis-
tributed sensors and actuators, connectivity of products and services, and ubiquitous
computing technologies—all resulting from the digitalization transformation—are
drivers for the emerging paradigm of the Internet of Things (IoT), also often referred
to as the Internet of Things and Services (IoTS) (Vermesan et al. 2011). During the
development phase of a new product or service based on digitalization, it remains
unclear how its offering will be used by the (end-) customers when deployed to the
market (Yoo et al. 2010). In conclusion, digital innovations and the resulting digital
transformation of industries require managers of incumbent organizations to be con-
stantly cautious of new opportunities and potential disruptive threats to their existing
core business (Keen and Williams 2013).
3.2 The Emergence of the Novel Paradigm Around

the Internet of Things
As a result of ongoing digital innovation, and digital transformation, the term “Inter-
net of Things” (IoT) has emerged in recent years. It is widely viewed as the next major
step after ubiquitous access to the internet (Fleisch et al. 2009). The term “Internet of
Things” was originally coined at the Auto-ID Lab at the Massachusetts Institute of
Technology (MIT) (Atzori et al. 2010; Mattern and Floerkemeier 2010). Moreover,
the Internet of Things is also referred to as the “Internet of Everything” as a synonym
(Lee and Lee 2015). Overall, the IoT refers to a future vision of a worldwide intercon-
nected IT infrastructure that will merge the physical and the digital world (Miorandi
et al. 2012; Vermesan et al. 2013). At the bottom of this vision, it is predicted that
virtually all physical objects will become intelligent. In this context, intelligence
means the capability to use sensor and actuator technology to collect information,
which then may be processed by a micro-computing unit locally and shared via
connectivity functionalities with other objects, or individuals online (Fleisch et al.
2015). On the other hand, while the internet in the former paradigm was limited to
the digital world, the embedded connectivity enables physical products and services
36 J. F. Tesch
to be part of an IoT ecosystem (Fleisch et al. 2015), thus creating a “symbiotic inter-
action” (Vermesan et al. 2011, p. 14) between the two worlds. Hence, researchers
emphasize that in terms of the development of new products and services, it is impor-
tant to exploit the new opportunities arising from these technological advancements
(Bilgeri et al. 2015). Overall, the IoT is expanding rapidly. By the year 2020, the
number of intelligent, connected devices is expected to be between 26 and 100 billion
(Andelfinger and Hänisch 2015), thus opening up a tremendous opportunity for the
digital transformation of industries and markets.
3.2.1 Definition
The terminology of the Internet of Things is still evolving. Currently it draws from
a multitude of different perspectives, such as technological issues regarding the
internet, or semantic challenges (Atzori et al. 2010). Hence, as of now, there is
no clear, universally acknowledged definition within scientific research (Whitmore
et al. 2015). However, a substantial number of academics (Li et al. 2015; Wortmann
and Flüchter 2015) agree on the definition put forth by the International Telecommu-
nication Union (2012, p. 1): “[The Internet of Things is] a global infrastructure for
the Information Society, enabling advanced services by interconnecting (physical
and virtual) things based on existing and evolving, interoperable information and
communication technologies.” Thereby, the interaction between the physical object
and the service increases the value, to be more than the sum of its parts (Whitmore
et al. 2015).
3.2.2 Technological Characteristics of the Internet of Things
The development process of digitized, connected products and services towards

a global Internet of Things is evolutionary, and mainly supported by the diffu-
sion of mobile broadband internet and the invention of smartphones (Andelfinger
and Hänisch 2015). While not yet fully deployed (Porter and Heppelmann 2014),
researchers also emphasize technological evolution beyond the current IoT frame-
work, citing the potential emergence of interconnected nano-scale devices (Whit-
more et al. 2015). In combination with developing new ways of delivering services
to the user, new IoT devices will pave the way for widespread adoption of the IoT
(Andelfinger and Hänisch 2015). During the IoT’s developing phase, subnets are an
important milestone, easing the task to attract a user base and are less rigid to change
(Vermesan et al. 2011); thus, the Internet of Things, People, Energy, Media and
Services are expected to develop and later to merge into a new whole. This change
is expected to happen in three horizontal layers, i.e. hardware (thing/device), con-
nectivity, and applications (Andelfinger and Hänisch 2015). Porter and Heppelmann
(2014) describe the various underlying technologies as a “technology stack” (2014,
p. 6), which consists of a secure connection between cloud services, databases, ana-
lytic capabilities, and an application platform (see Fig. 6). Vertical platforms will
ensure the interplay of those layers, thus enabling the development of problem-
specific solutions. This will initially lead to a fragmented market of various IoT
platforms. However, the platforms are expected to converge in the future (Wortmann
and Flüchter 2015). The following section reflects a synthesized understanding of the
future technological characteristics of the IoT paradigm based on the major publica-
tions to the IoT-field (Atzori et al. 2010; Miorandi et al. 2012; Porter and Heppelmann
2014; Lee and Lee 2015).
Within the thing/device layer, physical objects have a core local function accord-
ing to their original value proposition, e.g., a bulb is lightening its surrounding (c.f.
Bilgeri et al. 2015). Next, IoT components may be integrated to the physical object,
such as embedded sensor and sensor reading technology, actuators, microprocessors,
and communication devices, e.g. Near-Field-Communication, NFC or RFID (Atzori
et al. 2010). A local embedded software within the device operates and manages
the physical functionality (Lee and Lee 2015). I.e., a bulb, equipped with a motion
detector, may be switched on and off automatically based on the status of its sur-
roundings. In sum, this classifies the thing/device as smart (Miorandi et al. 2012)
as this layer describes the thing/device’s functionalities adapting to local conditions.
Next, the connectivity layer reflects the communication of the local, physical thing
with other things, services, or other backend-software outside its immediate eco-
sphere. Enabling technologies are, among others, Bluetooth, WiFi, ZigBee, or LTE,
which are forming a wireless sensor network (WSN). E.g., a smart door-opening
detector may trigger the light-bulb in the attic, already when the house is entered
downstairs. In sum, the connectivity layer, allows for communication between the
devices, creating new functionalities. In the previous example, the light-bulb also
serves as a warning device.
Furthermore, the connectivity layer enables communication with the IoT Cloud
layer, a software and hardware backend that allows for a multitude of relevant tasks
of the IoT-paradigm. First, so called middleware allows for the provisioning and
management of devices, i.e. connection of devices to the cloud-backend (Atzori
et al. 2010). With an application platform building upon the middleware, developers
are provided with an execution environment. E.g., a smart device within a WSN—-
such as the light-bulb—may report an incident and thus enables the functionality
of an emergency, IoT cloud-based application. Generally, such applications at their
core manage processes (Lee and Lee 2015). In terms of the IoT, this means defin-
ing, executing and controlling IT-based activities across things/devices, systems, and
people (Porter and Heppelmann 2014). Based on the collection and storage of data,
enabled through the application and the management of processes, the IoT cloud also
enables data analytics, i.e. the storage, processing and conjunction of information
from a multitude of different devices and WSNs (Vermesan et al. 2011). In sum,
the ability of network and storage technologies to manage and to process increased
data volume from connected things, is enabling so-called IoT applications at the top
level of the IoT technology stack. IoT applications coordinate smart things/devices,
people, and systems in a specific context (Porter and Heppelmann 2014). Kortuem
et al. (2010) distinguish activity-aware things that interpret collected data, while
policy-aware things enable the interaction with the smart object. Furthermore, pro-
38 J. F. Tesch
Fig. 6 IoT technology stack (based on Porter and Heppelmann 2014, p. 7; Wortmann and Flüchter
2015, p. 223)
cess-aware things interact with the ecosphere setting (Kortuem et al. 2010). In that
sense, a network of connected smart light-bulbs may be connected to the IoT cloud.
This enables an ongoing surveillance and security process that enables novel value
propositions to customers: instead of a pure local alarm functionality, the full IoT
technology stack enables a global service with processes that automatically trigger
help in case of an incident. Hence, based on data processing and analytics, security
service organizations are able to provide their offering more efficiently based on
factors such as automation, economies of scale, or an enhanced, hybrid value propo-
sition based on a physical function and a global service (Porter and Heppelmann
2014; Fleisch et al. 2015; Lee and Lee 2015).
In addition to the above outlined dimensions, Porter and Heppelmann (2014)
also emphasize three additional aspects: first, identity and security play a central role
across all identified layers in the IoT technology stack. Users have to be authenticated
and managed to ensure data integrity and security. Second, it is essential that the data’s
architecture and interfaces of the IoT cloud are adequately integrated into existing
enterprise IT-systems. Third, the capability to integrate external, third-party sources
of information is central for the success of the intended IoT ecosystem. In sum, the
holistic consideration of the outlined technological characteristics is essential for the
evolution of smart things to a smart product system and, ultimately, to the emergence
of a “system of systems” (Porter and Heppelmann 2014, p. 13).
3.2.3 Application Domains
Apart from the aforementioned example of a connected light-bulb in a smart building

system, other application domains of the IoT will emerge in the future (Atzori et al.
2010; Porter and Heppelmann 2014; Fleisch et al. 2015; Lee and Lee 2015). Con-
nected cars and other connected means of transportation will enable multi-modal
forms of mobility (Wan et al. 2014). Hence, the IoT paradigm enables users to
choose parameters reflecting their preferred mode of getting from point a to point
b on a platform. Such platforms then orchestrate processes to provide mobility ser-
vices, i.e. a combination of sequential means of transportation. The IoT-paradigm
thereby promises to increase value to both customers (mobility users) and suppliers
(providers of transportation). Analogously, researchers emphasize that these win-win
phenomena, so-called multi-sided platforms (MSP), will emerge in other application
domains of the IoT in the future, such as smart buildings/homes (Giordano and Fulli
2012), smart grids/energy (Miorandi et al. 2012), smart cities (Zanella et al. 2014),
smart health (Atzori et al. 2010) or connected industry (Lasi et al. 2014).
4 Business Model Innovation in the IoT Era
For various industries and their businesses, the emergence of the IoT paradigm
implies “the use of new digital technologies (social media, mobile, analytics or
embedded devices) to enable major business improvements (such as enhancing
customer experience, streamlining operations or creating new business models)”
(Fitzgerald et al. 2014, p. 2). Differentiating capabilities, resources, and success fac-
tors transform to be increasingly digitized and impact entire business models across
industries (Fichman et al. 2014; Wortmann and Flüchter 2015; Yoo et al. 2010).
As an example, the reproduction of digital goods and services is expected to con-
40 J. F. Tesch
verge to zero marginal costs (Rifkin 2014). Hence, traditional aspects of competitive
advantage, e.g. economies of scale which previously were dominant for producers
of physical goods in former economic paradigms, are losing significance (Porter and
Heppelmann 2014). On the contrary, the Internet of Things-Products-Services Logic
promotes digitally-enabled products (Fleisch et al. 2015) allowing for new, poten-
tially differentiating value propositions stemming from the diverse IoT technology
layers. In that sense, it is emphasized that companies are urged to find and develop
new, IoT-based business models in order to stay competitive in the future (Iansiti and
Lakhani 2014; Chesbrough 2010).
4.1 Layers of Value Creation of IoT-Based Business Models
In the IoT, the boundaries between the value proposition of physical products and
digital services intermingle. Hence, in order to innovate a business model in the
IoT era, applications are developed to consist of five general value-creation layers
(Fig. 7), as outlined by Fleisch et al. (2015). Within this stack, (1) the physical
thing refers to the immediate physical benefit to the user. (2) The sensor/actuator
layer describes the chip/minicomputer, sensors, and actuating elements, operating
on a local level, collecting local data and generating local benefits. Referring to the
widely-used term “edge computing,” this layer determines how ‘smart’ the device is
and to what extent computing takes place within the device vs. the cloud or a back-end
(Green et al. 2014). (3) With connectivity, sensor and actuator technologies become
accessible online worldwide, enabling existing functions to be leveraged and entirely
new services put forth. (4) Collected and stored sensor data needs to be analyzed,
structured, and classified in order to be synchronized with various other sources.
Such merging creates value beyond the sum of the individual data sources. (5) The
digital service layer combines and structures the opportunities of the previous layers
in packaged, suitable, and location-independent formats, also highlighting potential
collaborations and business processes required to implement such company and
industry spanning IoT solutions (Green et al. 2014).
4.2 Characteristics of IoT-Based Business Models
Based on the novel ways of creating new value propositions within the different
layers outlined, it is emphasized that new forms or models of how companies do
business will emerge in the IoT era (Fleisch et al. 2015). As the value creation layer
allows for multiple value propositions to several distinct customer groups, the overall
business model design becomes increasingly complex, i.e. that the components of
a business model are highly interdependent (Westerlund et al. 2014). Based on the
cognitive perspective on business models (Baden-Fuller and Morgan 2010) and the
collection of 55 predominant business model patterns in general (Gassmann et al.
Fig. 7 Value creation layer (based on Fleisch et al. 2015)
2014), Fleisch et al. (2015) argue that 21 IoT business model patterns are of particular
importance in order to exploit the value creation opportunities of the IoT as outlined
above (Table 5).
Regarding IoT business models in IoT domain from the most digital service-
dominant layer, one predominantly recurring key business logic refers to the n-sided
market pattern (Gassmann et al. 2014), also referred to as multi-sided platforms
(MSP) (Ghazawneh and Henfridsson 2013). Thereby, multi-sided platforms provide
technologies, products, or services that create value primarily by enabling direct inter-
actions between two or more parties, i.e. customer groups or other partners (Evans
and Noel 2008). Multi-sided platforms enable new applications through interactions
and improved transaction of information (Yoo et al. 2010). Hence, as an IoT enabled
business model typically offers a value proposition to distinct stakeholder groups
and is also reliant on input of multiple sources, the co-creation of value becomes
Table 5 Summary of the identified 21 IoT business model patterns by Fleisch et al. (2015)
IoT Business Model Patterns
Add-on Fractional ownership Pay per use
Hidden revenue Freemium Performance-based
contracting
Affiliation From push-to-pull Razor/blades + Lock In
Customer loyalty Guaranteed availability Self-service
Digitally-charged products Leverage customer data Sensor as a service
Direct selling Lock-in Solution provider
Flat-rate Multi-sided platforms Subscription
Note A detailed explanation of the outlined patterns can be found in the appendix of the thesis
42 J. F. Tesch
increasingly complex (Leminen et al. 2012) As a result, a previous value-chain per-

spective transforms to a multilateral network of partners, suppliers and customers
with multilateral business relationships.
4.3 IoT Business Model Innovation
While business opportunities enabled by the IoT are versatile, they usually also pose
major challenges to companies (Mattern and Flörkemeier 2010; Porter and Hep-
pelmann 2014). Besides the technical aspects of the IoT as outlined above, various
papers investigate the challenges to the development and innovation of IoT busi-
ness models (Cavalcante 2014; Chesbrough 2010). The stereotypical obstacle in IoT
business model innovation is to overcome a so-called “chicken-and-egg problem”,
meaning to raise a critical customer base in order to be appealing to partners and
vice versa, which is of particular importance to a MSP-business model type (Gawer
and Cosumano 2015). Further examples of challenges include the orchestration of
a complex ecosystem of partners, lack of access to data owned by partners, missing
analytics skills of the focal organization, or unfamiliar means of revenue genera-
tion. Hence, the appropriate development of IoT business models depicts a central
obstacle for companies (Koen et al. 2011; Bilgeri and Wortmann 2017).
It is widely agreed that a rather iterative evolvement of business models is the most
appropriate means of leading a business model design process (Sosna et al. 2010). A
practical approach to this is outlined by Ries (2011), who argues for rapid prototyping
and being able to learn from the customer by offering and testing a minimum viable
product (MVP). Iterative evolution in the form of field tests, showcases, and research
collaborations is a means of counteracting the lack of information about future market
conditions (Sosna et al. 2010). However, the required means for such evaluation
are especially high for complex BMs with a high degree of uncertainties (Bilgeri
et al. 2015): particularly in business model innovations that radically change the
way an organization does business, this requires the confidence of an investor or
management on the general viability of the innovation attempt. Thus, funding for a
MVP and effectual evaluation can only be realized if management receives some kind
of feedback about the general suitability of the business model innovation project in
terms of risk and return.
This implies the necessity of an analytical means of evaluation in an early stage
within the BMI process. However, in both the theory and practice of innovation
processes, the underlying aspect of analytical assessment of business model ideas
is often based on little-scrutinized assumptions (Witz et al. 2010). Based on these
facts, one can clearly identify a major gap in common understanding upon timing
and means of BMI evaluation, particularly in the outlined context of the complex-
ity of overcoming mutual interdependencies (chicken-and-egg-problem) that come
along with the Internet of Things. Although several researchers have emphasized the
importance of business model innovation in IoT (Leminen et al. 2012; Westerlund
et al. 2014), research is rare in literature (Rai and Tang 2014). In line with research,
also practitioners lack understanding of the role of BMI in IoT, resulting in a slow
spread of technological advancements (Bilgeri and Wortmann 2017).
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Part II
Decisions and Evaluation in IoT
To investigate how companies may systematically innovate business models, the

first study of this part identifies major decision points that occur in IoT business
model innovation projects. Building upon the developed understanding of decision
criteria, Chap. II.2 reviews existing tools and methodologies for the evaluation of
business models. Based on different characteristics, different modes of evaluation
are identified. In combination, the findings of Chaps. II.1 and II.2 allow for the
elaboration of an integrative framework structuring different phases of an IoT
business model innovation endeavour.
IoT Business Model Innovation
and the Stage-Gate Process
An Exploratory Analysis
Jan F. Tesch, Anne-Sophie Brillinger and Dominik Bilgeri
Keywords Internet of things · Business model innovation · Stage-Gate system

Case study research
1 Introduction
Large manufacturing companies across industries, such as General Electric (GE)

and others, got recently under severe pressure, facing new fields of competition
from non-traditional market players such as IBM, SAP or data analytics startups
(Iansiti and Lakhani 2014). Rather than supplying resilient industry equipment these
non-traditional competitors focus on new opportunities arising from the Internet of
Things (IoT) and “deriving new efficiencies and other benefits through advanced
analytics and algorithms based on the data generated by that equipment” (Iansiti and
Lakhani 2014, p. xci). In order not to miss out on these new fields of competition, in
Previously published in: Tesch, Jan. F., Brillinger, Anne-Sophie and Bilgeri, Dominik (2017): “In-
ternet of Things Business Model Innovation and the Stage-Gate Process: An Explanatory Analysis”,
International Journal of Innovation Management (IJIM), Vol. 21, No. 5, p. 1740002, https://doi.org/
10.1142/S1363919617400023 © World Scientific Publishing Europe Ltd.
J. F. Tesch (B)
A.-S. Brillinger
Catholic University of Eichstätt-Ingolstadt, Eichstätt, Germany
e-mail: anne.brillinger@ku.de
D. Bilgeri
ETH Zürich, Zürich, Switzerland
e-mail: dbilgeri@ethz.ch
52 J. F. Tesch et al.
particular the promising areas of data and service monetization, large multinational
companies will in future be continuously challenged to develop and implement IoT
related business models (Iansiti and Lakhani 2014; Chesbrough 2010). However,
current literature offers only limited insights on how to operationalize business model
innovation (Schneider and Spieth 2013).
Several practitioners contributed interesting, new innovation approaches to this
research stream. Increasingly popular concepts include lean-start-up, agile, effectua-
tion or design thinking (Blank 2013; Liedtka 2015; Ries 2011; Sarasvathy 2001). At
the same time, scholars disagree on how to adequately design business model innova-
tion processes (Frankenberger et al. 2013). They specifically debate, how to evaluate
such new approaches in light of so far widely implemented, structured launch-to-idea
processes such as the Stage-Gate system (Cooper 2008). Hence, it remains unclear to
what extent companies still rely on main go/kill decisions as suggested in traditional
innovation process literature.
Existing research on business model innovation to date offers interesting insights
on high-level stages of BMI processes in general (Teece 2010; Frankenberger et al.
2013), however, only little is known about the presence of main gates across IoT
specific BMI processes and even less about the underlying decision criteria applied
at these gates. To shed more light on the depicted research gap, this study seeks to
identify the main decision gates in IoT business model innovation. More specifically,
our research aims to address the following two research questions (RQ):
RQ1 : What are the main gates currently applied in IoT business model innovation?
RQ2 : What criteria are applied to make decisions at each gate?
In total, 27 expert interviews with employees from eight companies across the IoT
ecosystem were conducted. The expert interviews revealed that, despite the increas-
ing popularity of (radically) new innovation approaches, two fundamental decision
points can be identified across BMI processes. The first main gate, predominantly
utilizing qualitative data, refers to the decision, whether or not to test a business
model sketch. At the second main gate, then management has to decide based on
more quantified data, whether to scale the business model. These findings provide
a starting point for interesting future research avenues, including the question, how
the overall basis for decision making in BMI processes can be improved.
2 Theoretical Background
In light of the research questions addressed in this study, the following subchapters
briefly outline the four key concepts “Internet of Things”, “business models”, “busi-
ness model innovation” and the “Stage-Gate system”. Thus, this section provides the
theoretical foundation and defines the scope of the research.
IoT Business Model Innovation and the Stage-Gate Process 53
2.1 Internet of Things
The term “Internet of Things” was originally coined at the Auto-ID Lab at the Mas-
sachusetts Institute of Technology (MIT) (Mattern and Floerkemeier 2010; Atzori
et al. 2010). It describes a broader vision of a worldwide IT infrastructure merging
the physical with the digital word (Vermesan et al. 2013). As part of this vision,
virtually all objects are predicted to become intelligent—i.e. capable tuse sensor and
actuator technology to gather data as well as to communicate with each other and the
online world (Fleisch et al. 2014; Atzori et al. 2010). A growing number of such con-
nected devices encourages companies across industries to identify Internet of Things
technologies and related revenue potential as a top priority (Porter and Heppelmann
2014). While business opportunities arising from such IoT technologies are versatile
and reach across industries (Porter and Heppelmann 2014), they usually also pose
major challenges to manufacturing companies (Porter and Heppelmann 2014; Mat-
tern and Flörkemeier 2010). Organizations often lack the necessary competencies
to compete in these new markets, since offering IoT solutions significantly deviates
from their core business. Therefore, the IoT is assumed to come along with some
specific technical as well as business-related challenges. The most critical techni-
cal difficulties include an absence of protocol standardization, scalability limits or
energy supply (Atzori et al. 2010; Mattern and Flörkemeier 2010). Besides this tech-
nical research stream, various papers investigate the business-related challenges to
IoT (Cavalcante 2014; Chesbrough 2010). Examples for such hurdles include com-
plex business ecosystems, lack of data analytic skills or unfamiliar means of revenue
generation—in sum, the design of appropriate IoT business models (Frankenberger
et al. 2013; Koen et al. 2011).
2.2 Business Models
Initially the term “business model” was introduced as a buzzword in the popular
press some 20 years ago (Demil and Lecocq 2010; Magretta 2002). Therefore, the
related research connected to this relatively young concept is still in an early stage
(Landau et al. 2016). Despite the increasing attention it receives from scholars and
practitioners alike, no shared business model definition emerged so far (Baden-Fuller
and Morgan 2010; Wirtz et al. 2010; Zott et al. 2011). Following a common high-level
understanding, business models describe “both value creation and value capture”
(Zott et al. 2011, p. 1020) and explain “how the pieces of a business fit together”
(Magretta 2002, p. 91). Two different, yet complementary research streams dominate
the on-going debate about the conceptualization of business models (Landau et al.
2016). On the one hand, according to the “value-based perspective” of Teece (Teece
2010, p. 173), business models describe “the logic […] that demonstrates how a
business creates and delivers value to customers.” More specifically, business models
are assumed to “outline the architecture of revenues, costs, and profits associated
with the business enterprise delivering that value” (Teece 2010, p. 173). On the other
hand, following the seminal article of (Zott and Amit 2010, p. 1), the “activity system
perspective”, depicts a business model as “a system of interdependent activities that
transcends the focal firm and spans its boundaries”. In line with the activity system
perspective business models contain the “content (the tangible and intangible goods
exchanged), structure (involved stakeholders and their relationships), and governance
(control of flows of goods, resources and information) of transactions.” (Zott and
Amit 2010).
2.3 Business Model Innovation
A transformational perspective on business models, e.g. triggered by new techno-

logical means, is at the core of business model innovation (Cortimiglia et al. 2016).
The research stream on business model innovation is still very young and no clear
understanding of what BMI incorporates exists (Schneider and Spieth 2013). As an
umbrella term, the concept describes companies’ efforts related to “the search for
new [business] logics of the firm and new ways to create and capture value for its
stakeholders” (Casadesus-Masanell and Zhu 2013, p. 464). Such a definition incorpo-
rates both, the “modification, reconfiguration and extension […] of existing business
models” (business model development) as well as the design of “fundamentally new
and sometimes disruptive” business models (business model design) (Laudien and
Daxböck 2016; Markides 2006; Cortimiglia et al. 2016). Against the research ques-
tions addressed in this study, both approaches are considered as BMI (Cortimiglia
et al. 2016). So far the knowledge about BMI processes is limited (Schneider and
Spieth 2013). Several early studies elaborate on business model innovation pro-
cesses, including Teece (2010), Laudien and Daxböck (2016) and Frankenberger
et al. (2013). However, to the best of our knowledge, no empirical studies have yet
addressed business model innovation processes in greater depth. While there are very
recent studies starting to base their research findings on case study data (Laudien
and Daxböck 2016), previous papers on BMI processes (Frankenberger et al. 2013)
provide mainly anecdotal evidence. All these studies present different BMI process
models and concentrate on the best means to conceptualize and design BMI phases.
Thereby, the identified BMI phases deviate with regard to their number, terminol-
ogy, set of performed activities and sequence. In addition, focusing on phases, these
papers only pay little attention towards the main decision points and underlying
decision criteria within innovation processes (Laudien and Daxböck 2016). In light
of the limited research on BMI processes (Schneider and Spieth 2013), academics
agree that the related, yet much richer research stream on new product development
(NPD) is most suited to inform BMI research (Chesbrough 2010). A popular idea-
to-launch process widely implemented in the field of new product development, but
also various other types of business processes, is the Stage-Gate system (Cooper
2008).
2.4 Stage-Gate System
The Stage-Gate system, describes a prototypical innovation process consisting of dif-

ferent stages (sets of activities) separated by gates (decision points) (Cooper 2008).
Thereby, the system which was originally introduced in the 1980s, has been con-
fronted with current needs and approaches over time (e.g. agile development, iter-
ations, open innovation, lean start-up, design thinking) (Cooper 2014). As a result,
Stage-Gate has been further advanced and adapted and the benefits of using Stage-
Gate are well documented in literature (Cooper 2008). For the purpose of this study,
the Stage-Gate system offers a coherent and widely acknowledged conceptualiza-
tion of two important notions, namely gates and stages (Cooper 2008). In line with
Cooper’s most recent understanding of the concepts, stages and gates are defined as
follows (Cooper 2014).
Stages are seen as “a set of best-practice activities needed to progress the project to
the next gate or decision point” (Cooper 2008, p. 215). The purpose of each stage can
be determined by the information that are gathered, aiming to reduce projects main
uncertainties and risks. Thereby, the activities associated with each stage are project
specific and conducted simultaneously by cross-functional teams across business
units (Cooper 2008). While with each stage project costs increase, the “unknowns
and uncertainties are driven down so that risk is effectively managed” (Cooper 2008,
p. 215).
Gates following stages “are go/kill and prioritization decision points, […] where
the path forward for the next stage of the project is agreed to” (Cooper 2008, p. 215).
Gates can be characterized by three main features: deliverables (the “results” of
the previous stage building the basis for decision making), criteria (questions and
indicators against which the innovation project is evaluated) and outputs (decisions
about prioritization of specific project aspects or general go/kill decisions) (Cooper
2008). Analogous to stages, a gate’s design is project specific and its due date can
be rescheduled depending on the current project saturation (Cooper 2014).
3 Research Design
This study is a first attempt to analyze IoT-based business model innovations and their
development process, focusing on the relevant decision points and decision criteria.
To reach this goal, the research team chose a qualitative multiple-case study approach,
primarily based on semi-structured interviews (Eisenhardt 1989; Yin 2014, 1981;
Miles and Huberman 2008). A qualitative research approach is especially appropriate
to answer the research questions of this paper, because this research design targets
answering “why”- and “how”-questions. Besides, a qualitative approach seems right
to analyze realistic IoT-based business model innovations and their development
process. It facilitates collecting data which naturally occurs and is recommendable for
doing research on complex processes in real-life settings (Eisenhardt and Graebner
2007; Gephart 2004; Günzel and Holm 2013; Langley 1999). A multiple-case study
approach was chosen to improve the generalizability across different business models
and organizations and to allow cross-case analysis (Eisenhardt and Graebner 2007;
Yin 2014; Benbasat et al. 1987). Besides, several case studies help to improve external
validity and to mind observer bias (Leonard-Barton 1990, 1992).
3.1 Research Setting
We selected 13 cases from eight different companies. By this number data saturation
was reached, since the marginal gain of information of every additional case became
minimal and a generalizability across cases could be achieved by this sample size
(Leonard-Barton 1990; Eisenhardt 1989). Case studies were chosen according to
their suitability for the study, based on the following criteria: (1) the cases fulfill all
aspects of being a “business model innovation” according to the definition of this
paper; (2) the selected project is a business model innovation in the IoT context;
(3) Case firms are established companies across the IoT ecosystem; (4) interview
participants are experts from different functions/positions in IoT business model
innovations. In the run-up to the interviews, these criteria were checked in a first
phone call, via email and on the websites.
3.2 Data Collection
The team of three researchers interviewed 27 experts, highly experienced in IoT

business model innovation, from different positions and functions for securing data
and researcher triangulation (Denzin and Lincoln 2000; Blaikie 1991). Participants
were first contacted via phone or email and informed about the research project.
Then, they were asked to give some information about their position, department
and project in order to check the underlying criteria of the interview participation.
After, semi-structured face-to-face interviews were carried out in order to get good-
quality data (Koh et al. 2011). Yet, due to accessibility constraints, a few interviews
had to be conducted on the phone. Interviews took between 30 and 60 min. All
interviews were based on structured and detailed conversation guidelines, created
of relevant literature before the data collection and reviewed during the collection
phase (Schnell et al. 2014). Interviews were tape-recorded and fully transcribed to
achieve consensus, accuracy and completeness of the data (Harmancioglu et al. 2007).
For securing research ethics, all interviews were fully made anonymous (Miles and
Huberman 2008; Kuckartz 2012). Table 1 gives an overview of the cases and the
relating interview partners. For securing high anonymity, we only provided minimal
information about the projects, firms and employees.1
1 Further details may be obtained from the authors upon request.

Table 1 List of case studies and interview partners

Case Industry Project Interviews Roles of interview
description (partners) partners
1 Consultancy Diverse IoT BMI 3 (3) Manager; senior
consultant projects consultant;
across industries consultant
2 Technology Platform business 2 (2) Head of new
company model business
development;
project manager in
new business
development
3 Technology Telematic freight 2 (2) Project manager;
company system product manager
4 Software company IoT software 3 (3) Senior consultant;
platform business
development
manager; product
owner
5 Technology BMI of IoT solution 2 (2) Portfolio manager;
company; in the smart living research consultant
University industry (professor)
6 Technology Smart on board 2 (2) Member of the
company system management board;
head of product and
market
development
7 Consultancy Automated data 2 (2) Head of consulting;
center technical project
manager
8 Technology Automated 2 (2) Head of start-up
company customer validation incubator; CEO of a
for mobility corporate start-up
services
9 Technology Software solution 2 (3) Project manager;
company for connected senior product
power tools manager
management
10 Technology Newly introduced 2 (2) Business
company smart healthcare development
solution manager; strategy
and new business
development
11 Technology Dynamic process 1 (2) Head of
company and inventory department;
management for marketing manager
construction sites
(continued)
Table 1 (continued)
Case Industry Project Interviews Roles of interview
description (partners) partners
12 Mobility BMI to utilize new 1 (1) Senior consultant in
provider technologies for business
internal operation development
purposes
13 Technology Diverse IoT BMI 1 (1) Senior R&D
company projects manager
Apart from the interviews as primary data, secondary data, such as presentations,
reports and field notes, were collected for triangulating data (Blaikie 1991; Denzin
and Lincoln 2000).
3.3 Data Analysis
After the data collection, the three researchers independently analyzed the data,
consisting of interviews, field notes and additional secondary data. The analysis
aimed to answer the research questions. First, cases were separately described in
a report and then compared in a cross-case analysis (Miles and Huberman 2008;
Eisenhardt 1989; Brown and Eisenhardt 1997; Yin 2014). In the reports, cases were
individually summarized based on their characteristics. Then, the transcripts were
analyzed according to the items and categories of the conversation guidelines. In each
case the main decision points were identified and the mentioned decision criteria were
aligned to the decision points. After, the decision criteria were categorized into rather
qualitative, soft aspects and rather quantitative, objective aspects. Finally, the results
of each individual case were compared in a cross-case analysis (Miles and Huberman
2008; Eisenhardt 1989; Brown and Eisenhardt 1997; Yin 2014).
4 Findings
Especially when comparing to acknowledged approaches from new product devel-

opment (NPD), we observed that practitioners pursue business model development
in an iterative way, which interview partners referred to as continuous trial-and-error
procedure. This is primarily due to a higher complexity and a higher degree of uncer-
tainty. This stems from the fact that companies often initiate a BMI process triggered
by strategical considerations upon the development of capabilities and key resources
as potential competitive advantages in the future. Overall, the analysis revealed devi-
ating modes of how to pursue business model innovation individual for each of the
13 cases.
Fig. 1 Two decision points and their occurrence on the BMI timeline
A multitude of minor, preliminary decisions have to be made continuously in

the innovation processes. Hereby, the decision makers face an increased amount of
uncertainty and a lack of transparency of potential consequences. Among others,
the choice of potential business partners, the organizational structure, the physical
project location or the technical realization of the product are just a few examples.
However, later in the timeline, some situations forced the BM innovation manage-
ment to revise previous decisions. These, in the first place, appeared to be minor as
they only affected a partial aspect of the business model, such as key partners. In
contrast, in some cases, this practice interfered with the focal firm’s ability to build
a value proposition that addressed the customer’s corresponding willingness to pay.
Hence, the revision of an earlier initial decision led to an offset of other later, mutually
dependent decisions. A view on this through the lens of gates and stages, however,
shows that BMI project managers are forced “to skip back and forth” within different
stages. The BM innovation projects were “set-back” and were required to “reiterate”,
until all interrelating aspects of the business model sketch were saturated enough to
make investment decision criteria more transparent and tangible. R&D-management
therefore often allowed to develop the BM with bypassing some stages, gates and
decision templates. In light of these shortcomings, traditional idea-to-launch pro-
cesses were perceived to be outdated to be adequate for innovating new, potentially
disrupting business models.
Nevertheless, irrespective of sequential or flexible approaches employed, we iden-
tified two major decision points across all interviews flagging a”point of no return”
(see Fig. 1). Thus, these may characterize “gates”, when viewing the business model
innovation process through a lens corresponding to the original understanding of
Cooper.
The first major gate may be referred to as a decision whether to release the nec-
essary budget to evaluate a business model sketch through a proof of concept (PoC)
prototype, allowing for immediate customer interaction. Prior to this, the elaboration
and evaluation of the business model idea rather focuses on analytical work. The
decision criteria (Table 2) include the consideration of the overall financial viability
Table 2 Two main decision points and underlying criteria

Decision point 1: Commitment to test BM Decision point 2: Decision to scale business
sketch model design
Subjective interpretation of qualitative criteria Results from various test of assumptions
underlying the business model sketch
Exemplary criteria applied: Exemplary criteria applied:
• Possession of core competencies/dynamic • Successful prototyping and customer
capabilities interaction
• Fit with strategic roadmap • Results from field tests/customer surveys
• Potential customer demand • Commitment of stakeholders and key
• Interest of external stakeholders partners
• Alignment with market trends • Viable business case calculations
• Benchmark with competitors • Business model risk evaluation
• Level of uncertainty/risk • Significant customer demand is identified
• Rough financial estimates are likely to meet • Proof of possession of key resources
investment expectations
of the BM. Further, decision makers consider a sketched plan on how to deal with
uncertainties, such as a yet unclear willingness-to-pay for a novel value proposition.
Generally, one aimed to objectify unclear information for a decision base. This can be
regarded as an endeavor to predict future market conditions, technological prerequi-
sites or business logics in the surrounding industry. Means to gather information, e.g.,
included voting in workshops, balanced scorecards, metrics or other tools. However,
we observed that evaluation comes to a saturation point, where further analytical
work does not significantly lead to a more consistent decision base. At this point,
it is crucial to continue the innovation of the business model with prototype-related
means of elaboration and evaluation. Since several aspects of the future viability
of the business model remain, the decision-making of management or investors is
often driven by rather social skills of the project lead, such as the ability of good
storytelling of obtained, rather qualitative information.
The second decision point refers to a decision whether to commit the organiza-
tion to the implementation and rollout of the business model with all risks involved.
In order to be prepared for the decision, budged is released to finance the develop-
ment of a proof-of-concept business model prototype. Thereby, the business model is
continuously tested and adapted in an iterative setting. Furthermore, it is elaborated
until iteration cycles do not lead to any increase of the integrity of information. This
decision base for the second gate considers e.g. risk evaluation, scenarios, roadmaps,
customer surveys or field tests that aim to quantify the findings. Tools that gather
information have a rather quantitative focus, as they may directly reflect suppliers,
partners and customer’s opinion on tangible components of the business model. This
helps to strengthen financial profit and loss estimations to become more precise and
bear less uncertainties. However, we often found that one cannot fully describe all
effects and outcomes of a deployed business model when it is only in a prototype sta-
tus, because the interplay of several customer groups is potentially biased. Investors
or a managerial board for the IoT innovation projects had to base their decision in the
second gate on less certain factors, and a higher degree of risk, when compared to ear-
lier economic paradigms. These risks—amongst others—stemmed from difficulties
to handle organizational obstacles or orchestrating the interplay of complementary
customer groups and partners.
Despite the occurrence of the two characterizing decision points, their distance
and their occurrence on a timeline shift is individual for each case. Activities before
the decisions generally do not follow a sequenced procedure, even though when pro-
posed by a general innovation framework of the overarching organization. Pursued
activities as well as their logical meaningfulness diverge from case to case. They are
continuously iterated, primarily due to the complexity of the BMI endeavor. This
reveals different perspectives on the business model design and thus adds to a more
viable decision base. The activities are pursued until the integrity of additional infor-
mation is saturated. Thereby, we found that the actual timing of the decision points
is individual for each case. Factors that primarily drive the required time for the
“decision-readiness” are: (a) The innovation trigger of the project (e.g. technology
push vs. market pull); (b) The degree of digitalization of the business model; (c)
the degree of the novelty of the BM’s value proposition; (d) the industry and (e) the
prototypical pattern of the business model.
5 Discussion
Structured idea-to-launch processes represent a viable approach within classical new

product development (NPD). Especially when the complexity of the product or ser-
vice under development requires the collaboration of experts from different disci-
plines to work together, a sequential process helps to orchestrate activities of indi-
viduals involved. E.g., the stage-gate process (Cooper 2008) provides chronological
guidance, which allows for sequenced activities to be adequately managed. Our find-
ings however show, that the features and outcomes do not hold for the paradigm of
holistic business model innovation, especially in connection with the digital trans-
formation of technology companies as investigated. This finding particularly applies
with an increasing amount of interdependencies of business model components,
involved external stakeholders in a value network, and multi-sided-platform effects.
These factors are identified as prototypical IoT BMI projects (Westerlund et al. 2014).
The findings provide evidence that, across the diversity of IoT business model
innovation projects investigated, all cases share the occurrence of two gates as major
go/kill or prioritization decisions. These gates share alike decision criteria, which
even occurred regardless of the differences in between overarching innovation frame-
works or structured idea-to-launch processes. Traditional approaches often serve as
initial innovation guidance for the practitioners. However, when critically reflect-
ing the process ex-post, they often report constant deviation from these approaches,
as for example expressed by the multiple postponements of decision points by the
management board.
Strategic considerations on the companies’ capabilities and resources often serve

as a trigger for the initiation of a BMI-process in the IoT paradigm. Thereby, key
mutually depending components of the business model, such as customer groups,
corresponding value propositions or the necessary collaboration with stakeholders,
evolve over time. Current publications dealing with innovation frameworks corre-
sponding to these requirements are e.g. agile development, Lean Startup or Design
Thinking (Cooper 2014). These aim to conceptualize a semi-structured, however
rather iterative mode of business model innovation. Our research contributes to sci-
entific research dealing with such methodologies, as it provides evidence for two
characteristic decision gates: the first decision gate refers to a commitment to test a
business model sketch in a test-bed environment. The subsequent decision gate refers
to a commitment of the organization to scale the business model. These decision gates
may be interpreted as separators to identify chronological phases with activities hav-
ing distinct characteristics. This finding, and further evidence from the interviews
undergone, are inducted for a discussion on the set of characteristic activities before
decision gate one, in between, and after decision gate two.
Before gate one, activities contribute to the enhancement of the integrity of quali-
tative information. Fact-based, objective information to verify the potential financial
viability of the projected business model is difficult to assess ex-ante. For example,
it is difficult to evaluate different modes of revenue mechanics that aim to exploit the
maximum willingness-to-pay for a value proposition. Within the cases investigated, it
was not possible to obtain exact numbers for these factors purely based on analytical
considerations. Hence, in order to determine key financials for a first business case,
the project managers used workshops to collect a best-guess-estimation from industry
experts, potential partners and customers. However, the overall statement on potential
profitability is dependent on a broad variety of assumptions. Thereby, we observed
many times that the project management interpreted the gathered information based
on a “gut-feeling” in order to assemble an overall profit-and-loss estimation as a
decision base. Therefore, the integrity of information of these calculations was ques-
tioned in many cases by the management board. An important factor with a significant
impact on the kill/go decision at gate one stemmed from the story telling ability of
the project management. BMI tools that helped to carve out relevant information as
outlined in (Table 2) had an analytical and qualitative characteristic.
Between decision gate one and two, one may access potential customers, partners
and suppliers of the business model based on a proof-of-concept business-model-
prototype. This allows for new modes of evolving and evaluating different aspects
of the business model, such as the consideration of customer journeys, negotiations
with potential partners or quantitative customer surveys. With such means, one may
then objectify the underlying assumptions based on real interactions of customers,
partners and the prototype business model. Other than in the previous phase, these
means of evaluation are now rather based on tangible evidence. This also contributes
to the reduction of potential financial or organizational risks when scaling the business
model. Tools for this phase may be characterized by their ability to gather data and
information based on interactions with the prototype. Furthermore, these tools test the
assumptions underlying the business model, make them less uncertain, and contribute
to the integrity of quantitative information for a subsequent scaling decision.
After decision gate two, the major aim is to scale a successfully tested business
model design in terms of markets, width of product/service offering and organiza-
tional aspects to reach overall financial success. Within this phase, we have observed
better ability to standardize activities. Still, compared to NPD, we observed activi-
ties and corresponding tooling of a very iterative characteristic. Nonetheless, tools
and metrics of more structured idea-to-launch-processes, such as key-performance-
indicators (KPIs), tend to be a better indicator for the evaluation of business models
than compared to the previous phases.
Other than being purely focused on phases (cf. Laudien and Daxböck 2016), or
only building upon anecdotal evidence from past processes (Frankenberger et al.
2013), we focused and clearly identified two major decision gates across all IoT
business model innovation projects. Critically reflecting our findings, we argue that
this contributes to scientific research by providing a meta-view on idea-to-launch
processes in general. These reflect evidence from real-world IoT business model
innovation projects. Thus, this meta-view contributes to an enhanced understanding
of innovation processes, either structured such as Stage-Gate (Cooper 2008), or of
iterative nature. We suggest that future research may add to the comparability of the
multitude of suggested innovation processes and approaches within business model
innovation research. Furthermore, we argue that our finding contributes to research
endeavors for consolidation. Lastly, research on the aspect of business model tooling
profits from requirements and characteristics of activities within the different phases
of BMI.
In terms of practical implications, we hope that with an enhanced understanding on
IoT BMI, practitioners are enabled to better orchestrate their activities to strengthen
the decision base. The findings emphasize the necessity for a more iterative approach
that better reflects the necessities of increasingly complex BMI settings. With deliv-
ering a solid foundation for subsequent publications to a practitioner’s audience,
we hope to contribute to making the complexity of BMI easier to understand and
manage.
6 Conclusion
The paper at hand identified two main decision points and the applied decision crite-
ria in IoT business model innovation processes on the basis of 27 expert interviews.
In total 13 analyzed case studies included IoT projects from eight leading multina-
tional corporations across the IoT ecosystem. Hence, this study can be seen as a first
explorative contribution to a growing literature stream on IoT adoption. The findings
are conceptualized by applying the popular launch-to-idea process “Stage-Gate sys-
tem” and the underlying core concepts stages and gates. Despite IoT specific hurdles
to BMI (e.g. more complex ecosystems, etc.), new innovation approaches (e.g. iter-
ative, agile, lean methodologies) and faster emerging environmental influences (e.g.
shorter technology cycles), the results indicate that the majority of companies still
rely on at least two main go/kill or prioritization decisions as suggested in traditional
innovation process literature. In line with recent publications on how to design BMI
processes and how a next generation Stage-Gate system could look like, this paper
argues that (advanced) idea-to-launch processes are still of high relevance in prac-
tice. For that reason, it is crucial for practitioners and scholars alike to gain a better
understanding of the relevant gates and even more about the underlying decision
criteria applied.
This study and its results need to be assessed in the light of its limitations. A
generic limitation of qualitative case-study based research is generalizability. More
specifically, the research results are limited by the selection of case studies and the
respective interview partners. A comparatively large sample size of 27 experienced
professionals from eight multinational organizations across the IoT ecosystem were
selected based on a set of predefined criteria. Nevertheless, further studies should
be conducted covering other types of companies as well as additional industries. In
other words, future work in different empirical settings will be necessary to further
improve the validity of the research (cf. Desyllas and Sako 2013). Nonetheless, this
study aims to lay a fruitful ground for future research. Subsequent research avenues
might include follow up studies on the identified decision criteria in BMI processes
with regard to their impact on projects’ success. Another promising research topic
might deal with the question how the overall basis for decision making in BMI
processes can be further improved.
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The Evaluation Aspect of Digital
A Literature Review on Tools and Methodologies
Jan F. Tesch and Anne-Sophie Brillinger
Keywords Business model innovation · Digitalization · Evaluation · Tooling
1
1 Introduction
External factors, like fast technological change, rising competition and dynamically
changing market structures increasingly force established firms to continuously inno-
vate their business models (BM) (Reuver et al. 2009; Bucherer and Uckelmann 2011;
Doz and Kosonen 2010). A major technological change companies are facing is dig-
italization (Wirtz et al. 2010). This trend enables the success of many non-traditional
market players, whose business model is purely digital and based on information
rather than physical products. One recent example is AirBnB in the rental sector.
This company is proposing value to their customers at almost no cost by acting as an
intermediary without owning any real estate. Their focus on information-based busi-
ness models and the independency from self-owned physical assets allow AirBnB
1 The team of authors would like to thank Killus (2016) for the valuable support to the research
project.
Previously published in proceedings of the Twenty-Fifth European Conference on Information

Systems (ECIS), Guimares, Portugal, 2017.
J. F. Tesch (B)
A.-S. Brillinger
Catholic University of Eichstätt-Ingolstadt, Eichstätt, Germany
e-mail: anne.brillinger@ku.de

68 J. F. Tesch and A.-S. Brillinger
to grow rapidly on a global scale and greatly facilitate the ability to capture value
(Cannon and Summers 2014).
As this example demonstrates, this technological change offers many opportuni-
ties, e.g. digitalized products and services. Additionally, it also leads to high compet-
itive pressure and poses many challenges, especially to manufacturing firms (Koen
et al. 2011; Chesbrough 2010; Cavalcante 2014). It means heavy uncertainty and
causes many risks for most companies (Magruk 2015). In the past, many established
manufacturing firms relied rather on technology or product innovation instead of busi-
ness model innovation to achieve transformative growth (Johnson et al. 2008). For
these innovation types, evaluation criteria and well-established idea-to-launch pro-
cesses exist, e.g. the “Stage-Gate-Process” (Cooper 1990; Hart et al. 2003). These cri-
teria and processes help decision-makers lower uncertainty and make well-informed
decisions (Bredmar 2015). Yet, in the field of business model innovation, such tools
and processes are still rare.
Nevertheless, the demand for fast decisions of high quality is even higher in a
nowadays’ complex and dynamic world, due to the complexity and uncertainty of
new (digital) business models (Vecchiato 2012). In particular, established, producing
firms ask for information, decision support and processes to lower their uncertainty
and to make well-founded decisions (Eisenhardt 1989; Eiselt and Marianov 2014).
Evaluations about the possible outcomes of the proposed business model help to
generate the needed information to reduce uncertainty and manage business model
risks (Thompson and MacMillan 2010). This helps reduce the probability of failure
of business model innovation and creates additional new opportunities (Taran et al.
2015).
To the best of our knowledge, no comprehensive and structured literature review
of evaluation methods and criteria on digital business model innovation exists in
literature so far. Hence, the aim of this paper is to review the status quo through a
sophisticated keyword search in order to structure the field and to propose a typology.
This forms the basis for an integrative framework, guiding future research to discover
the role of methods and tools in different stages of a BMI project. Moreover, it aims at
establishing a basis to elaborate new tools and methodologies for both practitioners
and scholars.
This paper is structured as follows: in Sect. 2, the underlying theoretical concepts
are explained and a short outline of the existing literature dealing with the business
model evaluation aspect is presented. Section 3 details the chosen methodology for
literature review and provides an overview of the search process. To get a compre-
hensive and structured picture of existing literature in this field, this paper presents
a literature review based on the methodology of Webster and Watson (2002) and
Levy and Ellis (2006). The results are presented in Sect. 4, starting with a graphi-
cal overview about all identified evaluation methodologies and tools which will also
serve as a basic framework for the chosen structure. Section 5 discusses results of this
literature review and presents an integrative framework for digital business model
innovation. In Sect. 6, avenues for future research are discussed. The paper closes
with a conclusion in Sect. 7.
The Evaluation Aspect of Digital Business Model Innovation 69
2 Theoretical Background and Existing Literature Reviews
2.1 Theoretical Background
2.1.1 Business Model and Business Model Innovation
Traditional forms of digital business models are becoming more and more challenged
by the turbulent changes in political, economic, social and legal circumstances. In
the wake of a shift from purely physical products and services enabled by techno-
logical advancements and digital transformation, emerging players seek to innovate
existing business models (Fichman et al. 2014). The research field around business
model topic has garnered humongous attention among several disciplines, such as
Information Systems, Strategic Management, and Technology and Innovation Man-
agement (Zott et al. 2011). Therefore business models are often defined in various
ways (Wirtz et al. 2016). According to Teece (2010), “a business model articulates
the logic and provides data and other evidence that demonstrates how a business
creates and delivers value to customers.” The goal is “both value creation and value
capture” (Zott et al. 2011, p. 1020). Casadesus-Masanell and Ricart (2010) describe
that “business models are made of concrete choices and the consequences of these
choices”. Hence, these authors emphasize the importance of decisions and decision-
making in business model development.
Next to the term “business model”, also a variety of different definitions of the
concept of business model innovation exist. Business model innovation describes
the further development of an existing business model or the creation of a totally
new model (Bucherer and Uckelmann 2011; Zott and Amit 2010). It targets at cre-
ating value for the customer and, at the same time, capturing value for the company
(Bereznoi 2015; Yunus et al. 2010). One important driver of business model inno-
vation is the digital transformation. It is continuously challenging firms to innovate
their business model. If businesses restrain themselves from engaging in digital inno-
vation, other firms will capture the latent value by themselves (Chesbrough 2010).
2.1.2 Decision-Making in Business Model Innovation
One key aspect in the context of doing business is decision-making (Bredmar 2015).
This also affects the process of business model innovation. Decisions can be made
at different levels and based on different decision logics. Tesch et al. (2017) revealed
the occurrence of two major decision points across the process of all investigated IoT
business model innovation cases in their study. The decision, whether or not to finance
customer-centric business model prototyping and testing, is based on criteria mainly
elaborated by purely analytical work. The second decision, whether to scale and roll
out the business model in at least sub-markets, is done on base of the evaluation
of the prototype business model. One decision logic according to these findings
is the effectual (prototype testing) vs. causal (analytical work) decision approach
(Sarasvathy 2001).
The effectual decision concept is especially used by entrepreneurs (Dew et al.
2009), where decision-making aims at creating the future, rather than trying to
achieve a specific scenario. The effectual rationale considers the “affordable loss”,
seeing the future as unpredictable, and focuses on a set of given means to create
an effect (Sarasvathy 2001). Thereby, experimentation and flexibility are character-
istic for this logic (Chandler et al. 2011). In general, effectuation is described as
discovery-driven approach with the underlying assumption “to the extent we can
control the future, we do not need to predict it” (Sarasvathy 2001, p. 251). Effectua-
tion is expected to foster innovativeness in situations of high uncertainty (Sarasvathy
2001; Chandler et al. 2011). Also corporations may consider effectuation for BMI
(Thompson and MacMillan 2010). In contrast, causal evaluation models determine
the future as predictable. In this decision concept, approaches from the field of strate-
gic planning are used (Chandler et al. 2011). Thereby, the causal logic tries to choose
means to create a previously identified effect (Sarasvathy 2001; Chandler et al. 2011),
claiming that “to the extent we can predict the future, we can control it” (Sarasvathy
2001, p. 251).
Two other important aspects closely related to decision-making are uncertainty
and risk (Broadbent et al. 2008). When deciding between choices of possible busi-
ness model designs on a strategic stage, or also when considering tactics (Casadesus-
Masanell and Ricart 2010), decision-makers have to find an optimal relation between
acceptable risk and estimated return. By improving the information base of decision-
makers with evaluation criteria and tools, uncertainty can be lowered and risks can
be effectively managed (Thompson and MacMillan 2010). This helps to reduce the
probability of failure of business model innovation and creates additional opportu-
nities (Taran et al. 2015).
2.2 Existing Literature on Business Model Evaluation
Overall, there exists a multitude of elaborated research papers in the field of BMI
(Schneider and Spieth 2013; Wirtz et al. 2016) and also in tooling (Heikkilä et al.
2016; Bouwman et al. 2012). Yet, most articles in business model literature are mainly
dealing with the general business model understanding and point out the importance
and opportunities of business model innovation (Shi and Manning 2009; Chesbrough
2007; Bettis et al. 2015; Gambardella and McGahan 2010; Sosna et al. 2010; Teece
2010; Johnson 2010; Johnson et al. 2008). Nevertheless, only a few are taking an
explicit view on the aspect of evaluation in BMI. One example is the work of Brea-
Solís et al. (2015) that analyses the relation between the choices within business
model innovation and its consequences. In their article, they focus on the evaluation
of business models based on its strengths and weaknesses by investigating the change
of Walmart’s business model over time. In order to do so, they first have a look at
company’s main choices within its business model development. Thereafter, they
quantitatively analyze the consequences of these choices on the firm’s performance.

Their results propose that the fact whether a business model is effective or not does
not only depend on how it is designed, but also how it is implemented. Moreover,
they found out that the choices had a significant effect on performance (Brea-Solís
et al. 2015).
A very early research study of Pateli and Giaglis (2004) identifies the evaluation
aspect as a subdomain of business model research. However, at this point in time,
the aspect was identified as immature, and studies on the use and effectiveness of
tools and methodologies were largely missing. This missing validity of evaluation
methods can also be confirmed by later scientific research on business models (Demil
and Lecocq 2010). Besides, two literature reviews are of particular relevance, as these
have an IS perspective on business models and take the evaluation aspect into account
(Veit et al. 2014; Burkhart et al. 2011).
Veit et al. (2014) elaborate a research agenda for business model research in the
field of IS and categorize their propositions in definitions, components, represen-
tations and taxonomies. Furthermore, three domains of IS research are portrayed:
“Business models in IT industries”, “digital business models” and “IT Support for
developing and managing business models” (Veit et al. 2014, pp. 47–49). A lack
of evaluation methods in business model frameworks was identified, which should
be addressed by future research. Furthermore, the authors emphasize that towards
investigations on the evaluation aspect, the innovation process of business models
and corresponding toolboxes should be in focus.
Burkhart et al. (2011) consider the concept of business models and aim at iden-
tifying relevant research gaps. The authors review frequently cited literature and
identified 30 relevant papers, particularly contributing to the theoretical foundations
of the concept. The authors describe the existing heterogeneity of business model
definitions and the delimitation of business model and strategy. Furthermore, a cate-
gorization of literature is given (Burkhart et al. 2011, pp. 8–13): (a) A classification
of the underlying literature, (b) the comprehension of business models, (c) the usage
of business models, (d) the focus of business models and (e) the representation and
evaluation of business models. In terms of the aspect of evaluation, the authors found
that knowledge on evaluation methodologies is still in an infancy state. However, as
the keyword search was limited to the search string “Business model*”, the findings
appear to be too general for the explicit purpose of analyzing tools and methodologies
for business model innovation.
In sum, existing research studies do not provide a structured and detailed review
on the applicability of existing evaluation tools and methodologies in digital business
model innovation.
ACM 110 8 1
Elimination of duplicates & full text analysis
Forward and backward search / additional

Title and preview/ abstract analysis
AlSel. 721 35 6
literature from researchers

Database Research
EBSCO 613 21 13
+33/
IEEE 179 8 3 49 +22/
Science 11552 105 16 104

Direct
Springer 4654 30 6
Pro- 8213 64 6
Fig. 1 Overview of the search process (own representation)
3 Methodology
The approach for the paper at hand stands in line with the methodology of Webster
and Watson (2002), as well as Levy and Ellis (2006). An overview of this process is
shown in Fig. 1 Overview of the search process (own representation).
The search was performed within the scientific databases of the ACM Digital
Library, AIS Electronic Library, EBSCOhost, IEEE Xplore Digital Library, Sci-
enceDirect, SpringerLink and ProQuest. The search strings were chosen as fol-
lows: “Business Model*” AND “Evaluation”; …“Validation”; … “Stress-Test*”;
… “Assessment”; … “Tool*”; … “Method*”. The selection of search strings was
based on first insights on the topic of the evaluation aspect in digital BMI, which
are portrayed in the above paragraphs. To keep the focus on a high quality level,
literature rated A+ , A to B according to the VHB-JOURQUAL3 rating (N.N. 2015)
was initially considered as relevant. To limit the papers to be considered within a
manageable size, just the first 200 results were examined. In order to capture the most
relevant papers, the resulting lists returning from the database search were sorted by
the descending number of citations.
In the next phase, numerous duplicates were identified and deleted, as several
databases revealed identical papers. Title and abstract of the resulting papers were
analyzed to identify the papers (271) to be analyzed in full-text in the following. This
resulted in 49 relevant articles.
Within the subsequent forward and backward search based on the 49 articles, the
restriction on high-quality research papers based on the VHB-JOURQUAL3 rating
was omitted due to the infancy of research on the evaluation aspect in digital BMI.
Thereby, research papers from outlets not considered by the VHB-JOURQUAL3
were critically examined for having a rigor methodological approach to investigate
the use and effectiveness of the proposed tool. The forward and backward search
provided an additional number of 33 articles. Moreover, the team of researchers
considered an additional stock of literature from research endeavors in their field, of
which 22 scientific and practitioner sources were identified as relevant. The search
progress resulted in a total number of 104 articles. However, the key messages (sum-
marized in Fig. 1), were covered by a total of 57 sources. Only articles in German
and English were reviewed.
4 Results: The Evaluation Aspect in Business Model

Innovation
Webster and Watson (2002) suggest a “concept-centric approach”, so literature is

structured and categorized according to certain pre-defined concepts. Since one main
target of evaluation methods is the support of decision-makers within the business
model development process, a categorization based on the decision logics defined
in 2.1.2 seems appropriate. These criteria are: qualitative versus quantitative and
causal versus effectual evaluation, corresponding to the proposition of Sarasvathy
(2001). Figure 2 gives an overview of the various tools and methodologies identified
by literature review. The following subparagraphs describe their effect and use in the
context of the business model evaluation logics.
4.1 Qualitative Effectual Evaluation
The investigated literature emphasizes the importance of a “common language”

on how to describe a business model categorization and design idea as a base for
additional considerations throughout a BMI process (Osterwalder et al. 2010). For
that matter, frameworks and ontologies serve as valid tools for a qualitative effec-
tual assessment of the schemed business model design, as these help to identify
possible shortcomings throughout the continuous elaboration of a BM design. In
that sense, frameworks and ontologies may serve as “living documents” which are
refined in effect with the continuous learning from, e.g., qualitative evaluation criteria
(Casadesus-Masanell and Ricart 2007) throughout the ongoing innovation project.
Describing the business model from different stakeholder perspectives in a story-
telling way can help assessing critical components (Osterwalder et al. 2010). Frame-
works and ontologies primarily serve as a vehicle to continuously discuss and improve
the overall business model design (Osterwalder et al. 2010).
Further means of qualitative, effectual evaluation is drawing analogies from past
business model innovations (Abdelkafi et al. 2013; Amshoff et al. 2015). Accord-
ing to (Remane et al. 2017) database on business model patterns and corresponding
references on case studies, it helps to qualitatively evaluate business models through-
Qualitative Qualitative & Quantitative Quantitative

Ontologies and frameworks1 Experimentation5
Effectual logic
Evaluation criteria2 Trial and error6

Learning from analogies Minimum viable product
through BM patterns3 approach7
Roadmapping4
SWOT-analysis8 Analytic hierarchy process13 Market simulations, predictions

PESTEL9 Analytic network process14 and forecasting18
Causal logic
Taxonomies and morphological Balanced scorecards and Technology forecasting19

boxes10 metrics15 Customer surveys20
Expert interviews11 Scenario planning16 Financial spreadsheets21
Levers for strategic business Decision support systems17
model innovation12
1
Osterwalder et al.(2010); Teece(2010); Thompson and MacMillan
(2010); El Sawy and Pereira (2013); Gassmann et al. (2014); Morris 11 Bouwman et al. (2009); D'Souza et al. (2015)
12
et al.(2005) Bosbach et al. (2017)
2 13
Casadesus-Masanell and Ricart (2007); Osterwalder et al. (2010) Sharma and Gutiérrez (2010); Yüksel (2012); Ali (2015)
3 14
Gassmann et al. (2014); Abdelkafi et al. (2013); Amshoff et al. Yüksel (2012)
15
(2015); Remane et al.(2017); Streuer et al. (2016) Heikkilä et al. (2015); Al-debei et al. (2015)
4 16
Reuver et al. (2013) Bouwman et al. (2008); Bouwman et al. (2009); El Sawy and
5
McGrath (2010); Breuer (2013) Pereira (2013); Schoemaker et al.(2013); Tesch (2016)
6 17
Morris et al. (2005); Chesbrough (2010); Sosna et al. (2010); Sharma and Gutiérrez (2010); Yüksel (2012); Al-debei et al.
Frankenberger et al. (2013); Brea-Solís et al. (2015) (2015); Daas et al. (2013)
7 18
Sosna et al. (2010); Ries (2011); Breuer (2013) Gordijn and Akkermans (2001); Kauffman and Wang (2008)
8 19
Abdelkafi et al. (2013); Martikainen et al. (2014) Bouwman and van der Duin (2003)
9 20
Yüksel (2012) Giessmann and Stanoevska (2012)
10 21
Pousttchi and Hufenbach (2011); Kley et al.(2011) Gordijn and Akkermans (2001)
Fig. 2 Logic and criteria of evaluation research articles (own representation)
out the iterative improvement of the business model design. Thereby, Remane et al.
(2017) emphasize the use of business model patterns in relation to the iterative effec-
tual business model evaluation paradigms, as proposed by Frankenberger et al. (2013)
and Gassmann et al. (2014). Another proposed tool is Business Model Roadmapping
(De Reuver et al. 2013), which might be continuously used and adapted to system-
atically consider a “what-if-perspective” and to ongoing evaluate implementation
strategies.
4.2 Combined Qualitative and Quantitative Effectual

Evaluation
Learnings from past business model innovations (Sosna et al. 2010; Tesch et al. 2017)
have shown that iterative trial-and-error approaches in BMI endeavors are the most
suitable to counteract the high amount of uncertainties and complexity practitioners
face. In that sense, effectual means see the future as unpredictable and endeavor to
create an effect (Sarasvathy 2001). Effectual evaluation is used for an iterative explo-
ration (Osterwalder et al. 2010) and experimentation (Breuer 2013). In practice, it
means to actively experiment with business models through trial-and-error learn-
ing and continuous testing, and supports qualifying central BM elements (Breuer
2013). With each iteration of trial-and error, new qualitative and quantitative infor-
mation is gathered. Based on experimentation with a prototype, e.g., the customer’s
preferences and willingness-to-pay can be measured quantitatively and qualitatively.
Hence, innovation projects adjust the business model step-by-step towards a satura-
tion point, where observations, e.g. with test-customers, measure the business model
as tangible (Chesbrough 2010; Frankenberger et al. 2013; McGrath 2010; Morris
et al. 2005; Sosna et al. 2010; Teece 2010). A practical operationalization of this can
be identified with the “Minimum Viable Product” approach in the publication The
Lean Startup (Ries 2011). However, the development of a business model prototype
requires an initial decision to release necessary funds (Sosna et al. 2010). The por-
trayed sources correspond to the definition of Effectuation (Sarasvathy 2001), and
make use of gathered qualitative and quantitative information.
4.3 Qualitative Causal Evaluation
Particularly in the very beginning of a BMI endeavor, it is crucial to understand and

capture the environment of the intended business model design. However, before
planning a design for a prototype as descried above, one may analytically evaluate
such factors via analytical means based on, e.g., desk research. As an example to
this logic, using the PESTEL analysis tool, one may qualitatively evaluate politi-
cal, economic, socio-cultural, technological, environmental and legal shifts in the
ecosystem of the business model (Yüksel 2012, p. 52). SWOT-analysis is proposed
to both evaluate a business model sketch’s components and the design as a whole
(Osterwalder et al. 2010). Thereby, strengths, weaknesses, opportunities and threats
to the business model are systematically analyzed (Osterwalder et al. 2010). PES-
TEL and SWOT are proposed to be used prior to the development of a prototype
business model (Abdelkafi et al. 2013; Martikainen et al. 2014). Nonetheless, such
qualitative causal means of evaluation may be also considered throughout the whole
BMI process, as underlying factors are likely to be subject to change.
Sharma and Gutiérrez (2010) propose qualitative metrics as a part of decision-
support systems. Thereby, criteria such as collaboration and partnerships, dynamicity,
responsiveness to the market trends and scalability may serve as a measure in the
context of digital business. Furthermore, Al-Debei et al. (2015) consider cohesion
as alignment of the business model components, or the uniqueness for creating a
competitive advantage against competitors and a fitting network-mode, as further
considerable qualitative criteria.
The evaluation of sub-aspects may be undergone by conducting qualitative inter-
views (D’Souza et al. 2015). Such sub-aspects may include technological feasibility,
market fit and also customer acceptance. Another element of the qualitative causal
logic are morphological boxes (Kley 2011; Pousttchi and Hufenbach 2011) or tax-
onomies (Hanelt et al. 2015; Remane et al. 2017) which facilitate the compression
of complex problems.
4.4 Combined Qualitative and Quantitative Causal

Evaluation
In general, balance score cards and metrics can be seen as combined qualitative and
quantitative means of causal evaluation (Heikkilä et al. 2015; Al-Debei et al. 2015).
Qualitative causal means of evaluation, such as outlined with PESTEL by Yüksel
(2012), may be combined with quantitative tools by weighting the factors equally to
their importance. In this particular example, the Analytic Hierarchy Process (AHP)
and the Analytic Network Process (ANP) build upon the findings of qualitative eval-
uation criteria and enable a quantification to analyze business models and value their
elements (Ali 2015). Combining the quantitatively weighted qualitative criteria with
causal graphs, mathematical programming or statistics help to holistically investi-
gate a multitude of aspects of a business model in an analytic manner. This enables
multi-criteria decision support systems (Sharma and Gutiérrez 2010; Yüksel 2012;
Al-Debei et al. 2015; Daas et al. 2013). Such decision support systems may be used
to estimate a potential return on investment of an innovation project and thus indicate
the viability of a projected business model (Sharma and Gutiérrez 2010).
A very promising, yet scarcely considered causal evaluation methodology is sce-
nario planning. Several frameworks (Osterwalder 2010; El Sawy and Pereira 2013)
propose scenario planning as an evaluation tool as an integral part. However, these are
often missing out explicit guidance on how to use scenario planning in the context of
(digital) business model innovation. Scenario planning has its strength in situations
of high uncertainty, especially when potential revenues are difficult to forecast. A first
attempt to incorporate scenario planning into a BMI process is undergone by Tesch
(2016). Within the design process of a business model, such as within workshops or
with expert interviews, assumptions influencing the viability of the business model
are identified. These assumptions are then mapped on an impact/uncertainty matrix,
identifying “critical uncertainties” that mainly drive the future success the projected
business model. Having identified correlations between these critical uncertainties,
realistic scenarios can be built, allowing for an increased understanding on how the
business model design has to be adapted for each case. Considering the innovation
of business models with a digital aspect, it is important to focus on the dynamicity
of the model (Schoemaker et al. 2013). The outcomes of scenario planning can be
interpreted in qualitative (El Sawy and Pereira 2013; Osterwalder et al. 2010) or
quantitative (Ali 2015; Gordijn and Akkermans 2001) ways to evaluate the existing
business model design. In sum, considering scenarios has a positive impact on the
decision quality (Tesch 2016). The outcomes of quantitative and qualitative evalu-
ation tools and methodologies may be collectively interpreted in decision support
systems, that individually weight the importance of the different perspectives (Daas
et al. 2013).
4.5 Quantitative Causal Evaluation
Further means of quantitative evaluation can be identified by surveys, e.g. in order to

foster conjoint analysis (Giessmann and Stanoevska 2012). Existing publications to
the topic, however, imply the necessity of a yet pre-evaluated, already existing BM
prototype, on which such methodologies may evaluate the business model. Unlike
other modes, such purely quantitative causal means of evaluation do not question the
existing archetypal logic of the business model, as these rather evaluate sub-elements
such as customer segments and willingness-to-pay. Thus, the findings indicate that
such quantitative causal tools are rather suitable for an ex-post conformational eval-
uation of the previous decision to invest in a project with a certain business model.
Nonetheless, quantitative causal means of evaluation, as shown by e.g. Zibuschka
et al. (2016), bear immense potential for the evolutional development of a business
model.
Nonetheless, several scientific propositions exist, where quantitative causal means
of evaluation are suggested to assist in predicting possible future outcomes. However,
these were primarily published in early years of business model research. As an
example, Gordijn and Akkermans (2001) create a tool considering profit sheets to
evaluate a business model. Thereby, the exchange of value between the business
model owner and key stakeholders is considered. With quantitatively simulating
several scenarios, the tool seeks to predict if the business model will be viable in the
future.
Corresponding to the above findings for quantitative causal evaluation, the results
also show that no purely quantitative effectual evaluation methods can be identified
in current research, yet. This can be explained by the nature of Sarasavathy (2001)
understanding, where means of quantitative prediction and simulation (Gordijn and
Akkermans 2001; Kauffman and Wang 2008) appear too complex for an ongoing
adaption in effect with the continuous evaluation and refinement of a business model
prototype.
5 Towards an Integrative Framework for Digital Business

Model Innovation
The above findings have given insight on the use and effect of various tools and
methodologies in the field of evaluating business models. In line with that, the dig-
ital transformation of industries has progressively influenced research on business
model tools and methodologies over time. In terms of the research question out-
lined, this means that the innovation of the unit of analysis—business models as the
intermediator of strategy and processes (Veit et al. 2014)—may be systematically
supported by evaluation tools and methodologies. Nonetheless, despite the various
research contributions in recent years, tools and methods in the context of business
model innovation are still under-investigated (Schneider and Spieth 2013). Existing
frameworks of business model innovation tend to describe the projected business

model in a too fragmented view. As an advantage, frameworks support the analyza-
tion and explanation of underlying mechanisms. On the contrary, a major issue is
that interrelations in between the components are difficult to be captured (Demil and
Lecocq 2010). This is especially true for the highly uncertain and volatile economic
context ruled by digitalization (Westerlund et al. 2014). Hence, development pro-
cesses for digital business models are of a much more iterative nature and less linear
as in former innovation paradigms. This generally corresponds to the findings of
our research. With regard to the timeline of relevant publications on the evaluation
aspect, one can scheme a shift from the proposal of rather causal tools in earlier
publications, to a suggest a more effectual trial-and-error evaluation in more recent
contributions to BMI.
Particularly, the findings of the literature review point out that future research
should lay emphasis on contributing towards an overarching framework for business
model innovation, according to the requirements from the emerging novel economic
paradigms driven by the digitalization and the Internet of Things (IoT). In general,
existing integrative frameworks based on the use of tools and methodologies are
often seen as too generic (Brea-Solís et al. 2015). This makes it very difficult for
practitioners to make decisions in an innovation process, particularly in new IS-
related themes such as the Internet of Things (Lee and Lee 2015).
However, first literature on these themes largely emphasizes the importance of
considering hybrid service and product offerings, the value of data, or an ecosystem
perspective as imminent for such an integrative framework (Westerlund et al. 2014;
Turber and Smiela 2014). In fact, practitioners’ contributions to the field, such as the
Business Model Generation from Osterwalder et al. (2010), have had a significant
impact on research on research on digital business model, as indicated by a large
number of scientific citations. Nonetheless, an empirically well-grounded compre-
hensive approach on the use of tools and methodologies within digital business model
innovation is still missing. Particularly, detailed frameworks describing the process
of business model considering major decision points may help to shed light into this
issue.
A very recent series of studies in the field, building upon evidence from 13 case
studies of digital IoT-based business model innovation, revealed the occurrence of
two major decision points across the process of all investigated cases in the study
(Tesch et al. 2017). The first point refers to the decision of whether customer-centric
business model prototyping and testing should be financed or not. Therefore, the
decision-makers consider a corridor of similar, altering business model designs.
These lack in further evaluation and are required to be redefined by means of direct
customer interaction. The second, subsequent major decision is whether to roll out a
converged business model design in at least sub-markets or on a global scale. These
decision points may be seen as major kill/go decisions within BMI processes; Thus,
the findings of Tesch et al. (2017) imply that these decision points may separate
generic BMI process in three sequential stages of evaluation surrounding the two
major decisions. From the perspective of decision-making in digital business model
innovation, the findings of the paper at hand contribute towards an integrated frame-
Table 1 Logic and criteria of evaluation research articles (own representation)

Analytical stage Prototyping stage Scaling stage
Objective of the Selection of a set of Choice of a concrete,
resulting decision concrete business sufficiently
model archetypes (e.g. risk-and-return
multi-sided-platform) evaluated business
to be further model design for a
elaborated through an subsequent market
MVP rollout
Dominant mode of Causal, qualitative Effectual, qualitative Causal, quantitative
evaluation evaluation logic evaluation logic evaluation logic
Explanation Ideation of concepts Prototypal validationImplementation of
for a novel business and continuous processes, resources
model design. refinement of a and activities of the
Preparation of pre-defined business business model within
customer centric model archetype in anthe firm’s
testing with analytic MVP state organization;
means of evaluation Orchestration of
partners and
stakeholders; Rollout
in at least submarkets
The role of evaluation Ex-ante, qualitative Effectual, Evaluation of single
tools and analytical evaluation trial-and-error based components of the
methodologies of alternative business evaluation learning concrete business
model designs to from test-customer model (e.g. revenue
elaborate a set of interaction to identify model: pay-per-use
strategic choices the most promising vs. subscription) for
business model design the consistent setup of
for a market rollout business model tactics
work of a systematic BMI for digital projects. This is done by shedding light upon
the dominant modes of evaluation throughout a BMI process, as outlined in Table 1.
Above all, both evidence from the case studies investigated by Tesch et al. (2017)
and the reviewed literature on BMI tools and methodologies emphasize the impor-
tance of an ongoing evaluation. This means that in the beginning of a BMI process,
it has been proven to be most beneficial to start with raising hypotheses and assump-
tions that act as main drivers of the business model’s viability. The ongoing use of
tools and methodologies accompanying the BMI process reveals further informa-
tion that contributes to a better understanding of the general viability and potential
risks of the BM design. Furthermore, the potential return may be better estimated.
The impact of the tools’ and methodologies’ contribution differs according to the
dominant mode of evaluation of the identified stages of the BMI project.
The first general decision is to select a set of concrete, sufficiently evaluated set
of business model archetypes. As the funding for a prototype is yet to be clarified,
the evaluation is restricted to merely analytical means. “[…] decision-making of
management or investors is often driven by rather social skills of the project lead,
such as the ability of good storytelling of obtained, rather qualitative information.”
In addition, as the components of business model are interrelated and based on a vast
amount of volatile assumptions, the quality of information of quantitative evaluation
is limited. Hence, one may argue that that within this stage, supporting tools and
methodologies should have a primary focus on causal, qualitative evaluation. This
helps elaborate a set of strategic-choices on how to strategically pursue the BMI
endeavor (Casadesus-Masanell and Ricart 2010). In this sense, one may coin the
terminology of an initial, analytical stage of digital business model innovation before
the first decision identified by Tesch et al. (2017). For the second decision point, the
information base is gathered by the evaluation of the prototype business model. In
particular, the decision point 2 is based on the results on iterative customer interaction,
testing and revision of a prototype business model, until the quality of learning from
accompanying effectual evaluation reaches a sufficient degree of saturation (Tesch
et al. 2017). In the sense of the strategic choices school of thought on business
models (Casadesus-Masanell and Ricart 2010), the role of evaluation is to identify
the most promising business model design for the decision for a market rollout. Even
though the quantitative means become more feasible than in the previous phase, as
the business model design is more concrete with a prototype, the degree of their
information quality is limited, as the viability of a business model has to be evaluated
as a whole; means of quantitatively measuring single components of a business model
do not reflect their interrelation. Hence, for the time in between decision point 1 and
2, one may coin the terminology of prototyping stage, where the dominant mode of
evaluation has an effectual, qualitative logic. In the scaling stage after the second
decision point, the strategic choice on the business model design is rolled out in at
least, the submarkets. At this stage, the owner of the BMI project has committed
to a certain archetypal business model design; however, single components may be
adapted corresponding to market conditions. As a vehicle, quantitative means are
most considerable for their evaluation. For example, conjoint analysis surveying the
customer’s willingness-to-pay may contribute to an optimal pricing for a revenue
model. In this sense, the role of evaluation is to identify relevant tactics (Casadesus-
Masanell and Ricart 2010) to enhance the business model’s performance of single
components. The dominant mode of evaluation is of a causal, quantitative logic.
6 Avenues for Future Research
The identified tools and methodologies certainly bear their highest potential in the
BMI stage of the corresponding dominant logic. This can be confirmed by critically
reflecting the literature along with descriptions and case studies for explanation of
their use. Thus, the proposed integrative framework opens a new perspective upon
the evaluation aspect within procedures to innovate business models. As such, the
framework provides the groundwork to derive a multitude of avenues for future
research on tools and methodologies:
First, with the framework at hand, future research may critically review the actual
use of the identified tools and methodologies within the proposed stage. Despite the
fact that the viability tools and methodologies within the stage corresponding to the
dominant logic are well documented within the scientific literature, it is often based
on how these may contribute to an enhanced evaluation of the projected business
model design. Given the understanding of the role of tools and methodologies within
the regarded stage, future research might deal with the extent to which the tools may
actually contribute to the corresponding decision base.
Second, despite the predominant positioning of the framework, if and how tools
and methodologies may also be used in other stages, can be considered for future
research as well. As an example, quantitative causal methods may be predominantly
found in the later scaling stage of BMI projects, as in the example outlined by
(Giessmann and Stanoevska 2012). In this regard, quantitative causal tools serve as an
evaluation for potential tactics for the roll-out of the business model. To the best of the
authors’ knowledge, a scientific investigation on if and how such quantitative means
for the evaluation of strategic choices, i.e. differing business model archetypes, does
not exist yet. For example, transferring the idea of conjoint analysis to an analytical
stage may help to elaborate different choice options for the design of the projected
business model. This may enhance early managerial decisions and help to lower
obstacles for the release of the necessary funds for a subsequent prototyping stage.
Third, drawing analogies from past business model innovations, e.g. operational-
ized by business model patterns, are predominantly taken into consideration in com-
bination with a prototype business model design (Remane et al. 2017). As of yet, exist-
ing tools and methodologies (Gassmann et al. 2014; Abdelkafi et al. 2013; Amshoff
et al. 2015; Remane et al. 2017) rather emphasize their role on aspects of ideation
and stress-testing of sub aspects of the business model (e.g. revenue model patterns:
“pay-per-use” vs. “flat rate”). Future research may lie in the field of understanding
prerequisites, conditions and success factors for the applications, i.e. guidance as to
which pattern is suitable in the BMI project’s current situation. Furthermore, draw-
ing analogies from past business model innovations may help critically reflect the
business model design when learning from past situations of similar BMI endeavors.
Through this, also recurring risks within business models and specific business model
types can be identified, analyzed and considered in decision-making. However, the
reviewed literature does not sufficiently reflect concrete procedures to operationalize
this in practice.
Another avenue for future research is to combine multiple tools and methodolo-
gies. Particularly, a field of research opportunities lies at the intersection of qualitative
and quantitative methods in an iterative setting of effectual business model innovation
approaches. Purely qualitative tools and methodologies often take a rather subjective
perspective on the projected business model and its components. These thus may
be biased corresponding to the evaluators experiences. While qualitative means of
evaluation have their strengths in assessing critical components of existing business
models, they may lack in giving reliable predictions of the intended success of the
overall business model. With the study of Ali (2015), it is shown how it may be
possible to advance the value of qualitative tools with quantitative means. Transfer-
ring such considerations to combine qualitative and quantitative methodologies may
be an interesting avenue for further research. A concrete idea may be to consider
scenario planning (Tesch 2016), which is delivering qualitative and quantitative cri-
teria including financial aspects for a what-if perspective (Martikainen et al. 2014).
However, the full potential of such scenarios may be only revealed if combined with
the elaboration of road mapping-supported tactics (De Reuver et al. 2013). As of yet,
a tool allowing such stress-testing considerations needs to be created and validated.
Finally, risk and risk management was identified as a further fruitful field for
research on tooling in digital business model innovation. The presented evalua-
tion criteria and methods can be applied to business model risk management in
order to identify and evaluate BM. Strategic foresight may help to reduce reser-
vations by counteracting uncertain assumptions on estimated returns with reliable
scenarios. This contributes to make risks calculable and manageable, thus increasing
transparency on possible outcomes to decision-makers. Furthermore, future research
should explicitly focus on when and how to integrate risk management in the different
evaluation stages of BMI
7 Conclusion and Limitations
The elaborated integrative framework has given an overview of the various aspects
of digital business model innovation, support for decision-making and evaluation.
A rigorous literature review approach revealed the use and effectiveness of tools
and methodologies. This resulted in the categorization into qualitative, quantitative,
effectual and causal means of evaluation. However, the findings clearly emphasize
that the aspects of evaluation and risk management are still not sufficiently treated.
While the research gaps identified in previous literature reviews correspond to the
integrative framework for BMI as outlined, it helps to structure research avenues
for the further development of tools and methodologies. In sum, the paper at hand
provides practitioners and scholars with an integrative framework on digital BMI,
which helps to further conceptualize on the aspect of evaluation in digital BMI.
The research contribution is subject to several limitations. First, due to the novelty
of digital business model research, the database search sometimes resulted in very rare
results. Furthermore, as the terminology around business models is used in diverse
ways and with various definitions, sources without a substantial contribution to the
overall research goal were revealed. Second, the very important aspect of evaluating
the potential value of data in a future business model lacks significantly in scientific
consideration concerning tools and methodologies. Third, the keyword-search only
includes results that were rated B or better in the initial step of Webster and Watson
(2002) methodology. This constraint was adjusted in the forward-/backward step
to also consider lower-ranked scientific outlets and contributions to a practitioner’s
audience. Hence, to avoid inobservance of valuable information, a variety of literature
which was not rated B or above in the VHB JOURQUAL3 rating was added by the
author team. Next, the authors suggested a categorization of tools and methodologies;
despite following the rigorousness of Webster and Watson (2002) approach, the
allocation may be biased by the authors’ previous knowledge and experiences of
business model tooling. Lastly, the authors suggested a dominant evaluation logic for
the proposed BMI framework. In this sense, the framework may guide practitioners
to deploy viable means of evaluation corresponding to the current state of their BMI
project. Nonetheless, tools and methodologies for their concrete problem set still
have to be selected thoughtfully and subject to surrounding prerequisites of their
innovation project.
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Part III
Studies on the Roles of Tools
and Methodologies in IoT BMI
Against the background of the integrative framework elaborated in Part II, the
identified evaluation modes are investigated in greater depth. Distinct phases of IoT
business model innovation projects bear diverging prerequisites for the evaluation
aspect and thus have major implications on the use and effectiveness of tools and
methodologies. Chapters III.1–III.3 analyses effectual means by investigating how
business model patterns may operationalize the drawing from analogies of suc-
cessful business model innovations in the past. Chapter III.4 examines the use of
quantitative methodologies in different BMI phases. Finally, Chap. III.5 discovers
the role of qualitative, causal/analytical means with scenario planning as a repre-
sentative instance.
The Business Model Pattern Database:
A Tool for Systematic BMI
Gerrit Remané, Andre Hanelt, Jan F. Tesch and Lutz M. Kolbe
Keywords Business models · Business model innovation

Business model patterns · Taxonomy development
1 Introduction
In advanced economies, innovative capacity is the strongest determent for nations

and companies gaining competitive advantage (Porter 1990, p. 73; Porter and Stern
2001, p. 103). Therefore, companies often heavily invest in technological innovations
by developing new resources, plants, and even business units (Amit and Zott 2012,
p. 41). However, due to the increasing environmental turbulence in more and more
industries and markets (El Sawy et al. 2010, p. 835), this approach not only tends
to be very expensive but also exhibits uncertain returns on investments (Amit and
Previously published in Remané, Gerrit, Hanelt, Andre, Tesch, Jan F. and Kolbe, Lutz M. (2017):
“The Business Model Pattern Database: a Tool for Systematic BMI”, International Journal of Innova-
tion Management (IJIM), Vol. 21, No. 1, p. 1750004, https://doi.org/10.1142/S1363919617500049
©World Scientific Publishing Europe Ltd.
G. Remané · A. Hanelt · J. F. Tesch (B) · L. M. Kolbe

G. Remané
e-mail: gremane@uni-goettingen.de
A. Hanelt
e-mail: ahanelt@uni-goettingen.de
L. M. Kolbe
e-mail: lkolbe@uni-goettingen.de

90 G. Remané et al.
Zott 2012, p. 41). Furthermore, technological innovations are of little value without
appropriate business models (Chesbrough 2010, p. 354)—in fact, a good business
model can even make an inferior technology more successful than a superior one
(Chesbrough 2007, p. 12). Hence, the design and implementation of new business
models has the potential to be more efficient than technological innovation (Teece
2010, p. 186).
Research on the innovation of business models is spread across a variety of fields,
including information systems, strategic management, and technology and innova-
tion management (Schneider and Spieth 2013, p. 2; Abdelkafi et al. 2013, p. 15; Zott
et al. 2011, p. 1036). In contrast to other research streams such as product innova-
tion, business model innovation is still at the beginning of its academic elaboration
(Bucherer et al. 2012, p. 183). This is somehow surprising due to the increasing
importance of business model innovation for management practice, which requires
conceptual toolkits for business model design (Zott and Amit 2010, p. 217). There-
fore, research on this matter should contribute to a better understanding by providing
firms with specific means, i.e., tools and methods, for business model innovation
(Schneider and Spieth 2013, p. 23).
One such tool are business model patterns, which describe proven solutions to
recurring problems during business model design (Abdelkafi et al. 2013, p. 14). The
importance of the concept is underlined by the finding that 90% of all business model
innovations are a recombination of existing business model patterns (Gassmann et al.
2014, p. 21). Therefore, by drawing upon aspects that have already been proven to
be successful for other companies and industries, the use of business model patterns
provides an efficient way to undertake business model innovation (Abdelkafi et al.
2013, p. 31). However, business model patterns must not be misunderstood; they
do not focus on imitating, but rather address efficiency, spur creativity, and help to
overcome cognitive barriers in the business model innovation process, which is of
special importance in times of transformative change (Chesbrough 2010, p. 362).
An illustrative example and often cited instance of business model patterns is
razors/blades (e.g., Gassmann et al. 2014; Johnson 2010; Linder and Cantrell 2000).
The pattern describes companies offering a cheap basic product (“razors”) with
complements that must frequently be replaced (“blades”). These complements are
overpriced, thereby subsidizing the basic product. The pattern name was derived
from Gillette’s marketing efforts at the beginning of the twentieth century, when the
company gave away razors in order to sell more blades (Gassmann et al. 2014, p. 263).
Since then, several companies have innovated their business models by adopting the
razors/blades pattern. For instance, Nespresso, a sub-brand of the Nestlé Corporation,
introduced a new espresso maker that is sold for less than comparable machines of
competitors are (Amit and Zott 2012, p. 45). The espresso maker, however, can
only be used in combination with Nespresso-produced coffee capsules. In contrast
to traditional producers of coffee machines, Nespresso does not depend on gaining
value from selling the machines because the company uses the machines to open up
an even larger and continuous value pool by selling the highly profitable capsules
(Matzler et al. 2013, p. 36).
The Business Model Pattern Database: A Tool for Systematic BMI 91
Because business model patterns can be such a powerful tool for business model
innovation, several researchers assembled collections of business model patterns
(e.g., Applegate 2001; Gassmann et al. 2014; Johnson 2010; Rappa 2001; Weill
et al. 2005). Most researchers, however, have slightly different understandings of the
business model pattern concept. For instance, some collections discuss prototypical
patterns describing holistic business models (e.g., Weill et al. 2005), while others
discuss solution patterns that are specific building blocks of business models (e.g.,
Johnson 2010) and yet others mix both types of patterns (e.g., Gassmann et al. 2014).
Furthermore, the patterns among the various collections strongly overlap, with many
patterns occurring in multiple different sources. However, no collection is exhaustive;
even when applying the most comprehensive collection with 55 business model
patterns from Gassmann et al. (2014), one misses more than the two-thirds of the
available patterns. This diversity in research is of particular value, as business reality
is not uniform and demands different solutions for different settings. Nevertheless,
what is missing is a meta-perspective that describes which business model patterns
are suitable for which purpose.
With this research, we aim to make the valuable existing collections of business
model patterns more usable for both future business model pattern research as well as
practice applications. The goal of our work is to provide the respective audiences with
a tool guiding them to the patterns most suitable for their individual situations. Thus,
we aim to bridge the gap between general business model patterns described in prior
literature and specific business model innovation endeavors in research and business
practice. To do so, we conduct an exhaustive review and integrate all patterns into
one database. We filter for duplicates and structure the patterns along several dimen-
sions by applying a rigorous taxonomy-building approach. The database reveals the
relevant set of patterns for a specific impact on a company’s business model. Finally,
we describe how to apply the database for systematic business model innovation,
which we illustrate using a simplified case study. The database thus increases the
efficiency and effectiveness of business model innovations in practice by deriving
contingency factors for the targeted deployment of business model patterns. Further-
more, by filtering, structuring and categorizing business model patterns, the database
provides a common ground for the advancement of business model research, which
for instance can be used to describe transformative effects stemming from techno-
logical or societal developments across industries.
2 Background
Before developing and presenting the business model pattern database, we briefly
define the concepts on which we later build: the business model, business model
innovation, and business model patterns.
2.1 The Business Model
The business model is a useful lens for understanding a company’s underlying logic
because it describes what value is provided, how this value is created and delivered,
and how profits can be generated therefrom (Magretta 2002, p. 4). Thus, the business
model concept helps to look “at the forest, not the trees” (Amit and Zott 2012,
p. 49). The concept has a variety of uses, such as capturing value from technological
innovations (Chesbrough and Rosenbloom 2002, p. 529), defining the boundaries of
a firm (Zott et al. 2010, p. 216), and creating a direct connection between business
strategy and business processes (Al-Debei and Avison 2010, p. 365).
To achieve a common understanding of the business model concept, several
authors have identified elements belonging to a business model (e.g., Gordijn et al.
2005; Hedman and Kalling 2003; Johnson 2010; Osterwalder et al. 2010). Probably
the most popular example (Spieth et al. 2014, p. 243) is the business model canvas
by Osterwalder et al. (2010), shown in slightly adapted form in Table 1.
Defining business models and describing their constituent elements has received
much interest in academia and belongs to a static view on the concept. However, due
to heightening environmental turbulence and transformative developments, recent
research has shifted to a more dynamic view on business models (Wirtz et al. 2015,
p. 4). Business model innovation, i.e., “designing a new, or modifying the firm’s
extant activity system” (Amit and Zott 2010, p. 2), is important for startups wanting
to gain significantly in size as well as for incumbents looking to identify new growth
opportunities (Günzel and Holm 2013, p. 5). Business model innovations often result
in additional yet unused sources of value generation (Amit and Zott 2012, p. 42).
Compared to product innovation, innovations regarding the business model are often
harder to replicate (Amit and Zott 2012, p. 42) and can therefore be a very strong
competitive advantage (Magretta 2002, p. 7). At the same time, however, business
model innovations of competitors from within and outside the industry can be a
major threat to firms who fail to advance their business model in accordance with
external changes (Amit and Zott 2012, p. 42). For instance, the new business model
of no-frills airlines such as Ryanair have changed the rules of competition for the
whole airline industry (Demil et al. 2015, p. 4).
A business model innovation happens when a company modifies or improves
one or several elements of its business model (Abdelkafi et al. 2013, p. 13). Several
authors describe the phases of business model innovation. For instance, Franken-
berger et al. (2013, p. 249) distinguish among initiation, ideation, integration, and
implementation. Schneider and Spieth (2013, p. 20) mention exploration, exploita-
tion, and effects, while Osterwalder et al. (2010, p. 249) discuss the five phases
mobilize, understand, design, implement, and manage.
Table 1 Elements of a business model

Meta-component Business model building Description
block
Value proposition Value propositions Gives an overall view of a
company’s bundle of products
and services
Value delivery Customer segments An organization serves one or
several customer segments
Channels Value propositions are
delivered to customers through
communication, distribution,
and sales channels
Customer relationships Customer relationships are
established and maintained
with each customer segment
Value creation Key resources Key resources are the assets
required to offer and deliver
the previously described
elements
Key activities Number of key activities
performed by key resources
Key partnerships Some activities are outsourced
and some resources are
acquired outside the enterprise
Value capture Revenue streams Revenue streams result from
value propositions
successfully offered to
customers
Cost structure The business model elements
result in the cost structure
Source Osterwalder et al. (2010); meta-components renamed according to Günzel and Holm (2013)
Business model innovation is one of the greatest challenges for today’s managers
(Chesbrough 2006, p. xvii). Christensen and Overdorf (2000, p. 66) demonstrate
how established firms fail in disruptive innovation due to conflicts with existing
technologies and business models. Chesbrough (2010, p. 359) argues that it is not
only conflict but also confusion that holds managers back from business model
innovation, as they fail to recognize proper business models. Bohnsack et al. (2014,
p. 284) point out that path dependency cognitively constrains managers in the sense
that they stay close to what they already know when it comes to the design of new
business models. These challenges also render the generic phases for business model
innovation—independently of their concrete naming and order—of little value if not
supplemented by concrete tools and methods. For instance, the identification of new
business model ideas will probably not happen by following advice to do so, but
rather by applying tools that facilitate creativity. Furthermore, tools are needed to
enable experimentation and overcome cognitive biases such as path dependence in
decision making (Spieth et al. 2014, p. 243), as business model innovations have been
described as being depended on trial-and-error-learning (Sosna et al. 2010, p. 383)
or discovery-driven approaches (McGrath 2010, p. 247). This especially holds true
as business environments become more complex and dynamic (El Sawy et al. 2010,
p. 835).
The importance of tools is underlined by several researchers suggesting that tools
are at least as important as the people applying them (Garfield et al. 2001, p. 322).
Paradigm-changing ideas in particular—i.e., the more disruptive ones—can be facil-
itated significantly by the use of creativity tools (Garfield et al. 2001, p. 330). Fur-
thermore, tools have been proven to be particularly suitable for facilitating group
interaction and idea generation during business model innovation (Eppler et al. 2011,
p. 1336). There are several tools that can be applied to support one or several phases
during business model innovation. For instance, Pynnönen et al. (2012, pp. 6–7) use
the customer value model, the business mapping framework, and group decision-
support systems. De Reuver et al. (2013, p. 1) propose business model roadmapping,
which can be used to identify the ideal transition path once the desired business
model changes are identified. However, the most popular tools for business model
innovation are the business model canvas and business model patterns. Through an
experimental study on the effectiveness of the business model canvas for idea gen-
eration and group interaction, Eppler et al. (2011, p. 1323) find that it significantly
increases collaboration while significantly decreasing creativity. In contrast, business
model patterns not only facilitate group interaction (Gassmann et al. 2014, p. 47) but
also promote creativity by thinking in analogies (Johnson 2010, p. 130).
2.3 Business Model Patterns
When defining business model patterns, researchers often refer to Christopher

Alexander, a famous architect who is considered to be the father of patterns (e.g.,
Abdelkafi et al. 2013; Amshoff et al. 2015; Osterwalder et al. 2010). He made sev-
eral publications on the use of patterns in architecture—most famously, “A Pattern
Language” (Alexander et al. 1977), in which he proposes 253 patterns that can be
used to design even highly complex architecture. Alexander asserts the following
definition: “Each pattern describes a problem which occurs over and over again in
our environment, and then describes the core of the solution to that problem, in such
a way that you can use this solution a million times over, without ever doing it the
same way twice” (Alexander et al. 1977, p. X).
From Alexander’s definition, we can learn three important aspects that also hold
true for business model patterns. First, patterns describe a “solution” to a recurring
“problem” that needs to be solved, which also accounts to business model patterns
(Abdelkafi et al. 2013, p. 14). For instance, a business model must capture value and
therefore requires a pricing strategy for which the pattern razors/blades (Johnson
2010) can be a solution. Second, Alexander notes that a pattern describes “the core
of the solution,” which means that a business model pattern often describes a solution
Table 2 Definitions of business model patterns

Author Definition
Abdelkafi et al. (2013, p. 14) “The relationship between a certain context or
environment, a recurring problem and the core
of its solution”
Amshoff et al. (2015, p. 4) “Reusing solutions that are documented
generally and abstractly in order to make them
accessible and applicable to others”
Gassmann et al. (2014, p. 22) “A specific configuration of the [..] business
model dimensions […] that has proven to be
successful”
Osterwalder et al. (2010, p. 55) “Business models with similar characteristics,
similar arrangements of business model
Building Blocks, or similar behaviors”
Timmers (1998, p. 4) “Generalizations of specific business models”
Weill and Vitale (2001, p. 21) “The essence of a different way to conduct
business”
for only a certain part of a company’s business model (Weill and Vitale 2001, p. 21).
Hence, complete business models of companies are often a combination of several
patterns (Osterwalder et al. 2010, p. 55). Third, a pattern should be usable “a million
times over” and therefore requires a certain level of generalization (Amshoff et al.
2015, p. 4; Timmers 1998, p. 4). Accordingly, business model pattern researchers
integrate one or several of these three aspects into their definitions (Table 2).
The majority of literature on business model patterns comprises lists of patterns.
However, when practitioners and researchers attempt to use these collections in their
current form, they face three major challenges: incompleteness, overlap, and incon-
sistent structure. First, incompleteness means that no single collection of patterns
is even close to exhaustive. The most comprehensive collection of business model
patterns, from Gassmann et al. (2014), contains 55 patterns. But in other collections,
more than 100 additional patterns can be found. Therefore, innovators applying pat-
terns from just one source can be sure to miss the majority of business model patterns.
Second, existing collections have a significant amount of overlap. For instance, the
business model pattern virtual community involves creating and facilitating an online
community of people by enabling interaction and service provision (Weill and Vitale,
(2001, p. 21). However, several patterns from other collections describe a very sim-
ilar idea, including selling experience, create user communities, user communities,
community model, social networking services, community building, and virtual com-
munities (Clemons 2009, p. 21; Johnson 2009, p. 2, 2010, p. 131; Rappa 2001, p. 1;
Strauss and Frost 2014, p. 57; Timmers 1998, p. 6). Hence, applying several col-
lections simultaneously leads to significant redundancies. Third, the patterns are not
structured in a consistent manner. Whereas Eisenmann (2001) presents the patterns
without an underlying structure, Linder and Cantrell (2000) group their patterns in
eight categories and Timmers (1998) arranges the patterns according to two dimen-
sions. Due to this lack of consistent structure, it is very challenging to navigate
through the different collections when attempting to apply them for business model
innovation. In particular, this limits the possibility of filtering for business model
patterns that address the situation of a specific business model innovation endeavor,
which would substantially increase the efficiency and effectiveness of the patterns’
usage.
The three issues of existing business model pattern collections—incompleteness,
overlap, and inconsistent structure—can, in general, be mitigated by a review. A
review summarizes existing literature and thereby “creates a firm foundation for
advancing knowledge” (Webster and Watson 2002, p. 13). However, existing reviews
of business model patterns have insufficiently addressed the issues related to exist-
ing literature. Most importantly, no review is exhaustive, but even the most compre-
hensive review (Bonakdar et al. 2013) misses more than two-thirds of the patterns
available. Furthermore, the majority of reviews list different patterns but do not sys-
tematically analyze the individual patterns by, e.g., highlighting commonalities and
differences. This is because existing reviews deal with business models in general or
their application to a specific case. Thus, the authors of prior reviews aimed merely
to provide a rough overview.
3 Methodology
Drawing on existing knowledge in the field of business model patterns and the asso-
ciated gaps in research outlined above, we argue that a meta-perspective serving as
a navigator through the business model pattern landscape represents an important
contribution but remains missing. The objective of this research was to create such a
meta-perspective. Therefore, we proceeded in three major phases, which are further
detailed in Table 3. The objective of Phase 1 was to mitigate the incompleteness by
systematically identifying and reviewing existing collections, while Phase 2 aimed
to remedy the overlap by filtering for duplicates and Phase 3 focused on creating a
consistent structure among all patterns.
3.1 Phase 1: Review Business Model Pattern Literature
We searched for relevant literature on business model patterns in several common

databases, including EBSCO, Web of Science, and Google Scholar. Because not
all authors dealing with the topic use the name “business model patterns,” we also
had to search for other terms, including “atomic business models” (Weill and Vitale
2001, p. 21), “business model analogies” (Johnson 2010, p. 131), “business models”
(Rappa 2001), “operating business models” (Linder and Cantrell 2000:7), and “profit
models” (Tuff and Wunker 2010). The initial sources were supplemented by search-
ing for forward and backward referencing (Webster and Watson 2002). Literature
from academia and practice was likewise included in the search. The scope was on
Table 3 Research design overview

Phase 1: Review Phase 2: Extract and Phase 3: Structure
business model pattern integrate business patterns by impact on
literature model patterns BM elements
Objective Exhaustive overview of Integrated list of Consistent structure for
business model pattern patterns that is free of navigation through the
literature duplicates patterns
Steps Search scientific Extract patterns, Apply a
databases (e.g., descriptions, and taxonomy-building
EBSCO) for articles on examples from original methodology to create a
business model patterns sources into one consistent structure
Search for additional common database (Nickerson et al. 2013)
articles via forward and Filter for useless Define a
backward referencing patterns meta-characteristic of
(Webster and Watson Filter for duplicates by the taxonomy
2002) searching for Run through several
Systematically analyze Identical/similar name iterations until all
original and review Similar description patterns are classified
articles Overlapping examples
For each potential
duplicate decide on
aggregation by at least
two researchers
Result 22 original and 6 review 356 business model 182 patterns classified
articles identified patterns identified, 182 by affected business
after filtering model elements
business model pattern collections dealing with generic patterns as well as e-business
model patterns. Collections focusing on a single industry were not included in this
review (e.g., mobile platform providers (Ghezzi 2012; Becker et al. 2012), the textile
industry (Hodge and Cagle 2004), project-based firms (Kujala et al. 2010), Spanish
industry (Camisón and Villar-López 2010). As a result, we identified 22 original
collections of business model patterns (see Table 4) as well as six reviews, each
summarizing several original collections. As we also studied all original collections
mentioned in the review articles, we are confident that our sample represents a fairly
complete picture of business model patterns mentioned in the existing literature.
3.2 Phase 2: Extract and Integrate Business Model Patterns
Next, we extracted all 356 patterns mentioned in the 22 collections of business model
patterns that were identified in Phase 1 and loaded them into a database. As our data
stems from multiple sources, we had to harmonize the format and properly filter the
instances (Bauer and Günzel 2013, p. 95).
Table 4 Original sources of business model patterns

Source # Patterns Industry Pattern Research Patterns
focus granularity methodology structured by
Andrew and 3 General Prototypical n.a. n.a.
Sirkin (2006) patterns
Applegate 24 E-business Prototypical Conceptual, 6 categories
(2001) patterns along the
value chain
Bienstock 11 E-business Mixed Empirical, 6 dimensions:
et al. (2002) taxonomy number of
through buyers,
analysis of number of
400 websites sellers, type
of seller, price
mechanism,
nature of
product,
frequency of
offering
Chatterjee 4 General Prototypical Conceptual, 2 dimensions:
(2013) patterns Porter’s efficiency vs.
generic perceived
strategies value,
individual
firm vs.
network
Clemons 9 E-business Mixed n.a. 2 categories
(2009)
Eisenmann 8 E-business Prototypical n.a. n.a.
(2001) patterns
Fleisch et al. 8 E-business Solution Conceptual, 2 categories
(2014a) patterns transfer of (which are
existing included here
patterns to the as patterns
Internet of themselves)
Things
Gassmann 55 General Mixed Empirical, Alphabetical
et al. (2014) recurring order,
patterns of supplemented
success at 237 by mapping
business on affected
model business
innovations model
dimension
Hanson 18 E-business Mixed n.a. 5 categories
(2000)
Hartman et al. 5 E-business Prototypical n.a. n.a.
(2000) patterns
Johnson 20 General Solution n.a. Alphabetical
(2009) patterns order
(continued)
Table 4 (continued)
Source # Patterns Industry Pattern Research Patterns
focus granularity methodology structured by
Johnson 19 General Solution n.a. Alphabetical
(2010) patterns order
Linder and 34 General Mixed n.a. 8 categories
Cantrell
(2000)
Osterwalder 5 General Mixed n.a. n.a.
et al. (2010)
Rappa (2001) 50 E-business Mixed n.a. 9 categories
(which are
included here
as patterns
themselves)
Strauss and 20 E-business Mixed n.a. 1 dimensions:
Frost (2014) level of
business
impact
Tapscott et al. 5 E-business Prototypical Empirical, 2 dimensions:
(2000) patterns analysis of economic
more than 200 control, value
case studies integration
Timmers 10 E-business Mixed Conceptual, 2 dimensions:
(1998) along the functional
value chain integration,
degree of
innovation
Tuff and 20 General Mixed Empirical, Alphabetical
Wunker recurring order
(2010) patterns of
success in
sample of
more than
5,000
innovations
Weill and 8 E-business Mixed Empirical, Alphabetical
Vitale (2001) from order
consulting
work
Weill et al. 16 General Prototypical Conceptual, 2 dimensions:
(2005) patterns possible rights being
combinations sold, type of
along two asset involved
dimensions
Wirtz et al. 4 E-business Prototypical n.a. n.a.
(2010) patterns
Sum 356
We shortened the description of each pattern to one sentence and ensured that at
least one example was provided. If an example was lacking, we manually searched
for a company that applied the pattern. We next filtered for useless and duplicate
instances. Two patterns—human creator, i.e., creating and selling human assets,
and human distributor, i.e., buying and selling human assets (Weill et al. 2005,
p. 11)—were found to be impossible because they are illegal. Therefore, we removed
them form the database. Furthermore, we identified potential duplicate patterns by
comparing names, sample companies, and descriptions. For instance, the pattern
name mass customization occurs in the collection of Gassmann et al. (2014) as well
as Strauss and Frost (2014). According to Gassmann et al. (2014, p. 352:352), the
pattern means that “individual customer needs can be met under mass production
conditions and at competitive prices.” Strauss and Frost (2014, p. 58:58) maintain
that mass customization allows one to “customize products and communication on
an individual basis for a large number of people.” After two researchers were unable
to identify any significant differences between the two descriptions, the two pat-
terns were merged to one instance within the database. Furthermore, we found that
Gassmann et al. (2014) mention Dell as an example of a company that implemented
the pattern. Because Dell is also provided as example for the pattern mass-customized
commodity from Linder and Cantrell (2000), we considered this pattern to also be
a potential duplicate. Linder and Cantrell (2000, p. 7:7) describe the pattern as one
that “offer[s] ‘have it your way’ model options on top of competitive prices, con-
venient buying, and fast delivery to win in commodity markets.” We agreed to also
consolidate this pattern with the other two, thus condensing all three instances to
the pattern mass customization within the database. However, the original sources
(i.e., Gassmann et al. 2014; Linder and Cantrell 2000; Strauss and Frost 2014) and
alternative names (i.e., mass-customized commodity) are still directly linked to the
pattern. Using the same approach, we summarized a total of 172 duplicate business
model patterns, resulting in a final list of 182 patterns (see Appendix 2).
3.3 Phase 3: Structure Patterns by Impact on Business Model

Elements
The objective of the third phase was to develop a consistent structure for better
navigation through existing business model patterns. To do so, we classified patterns
with similar characteristics into common groups, i.e., we developed a taxonomy
(Nickerson et al. 2013, p. 338). Thereby, the homogeneity of objects (i.e., business
model patterns) within a group had to be maximized while the heterogeneity between
groups had to be minimized (Bailey 1994, p. 1). As taxonomy research often lacks
a profound methodology (Nickerson et al. 2013, p. 340), we applied the taxonomy-
building approach from Nickerson et al. (2013). Their approach has been proven by
its successful application (e.g., Geiger et al. 2012; Haas et al. 2014; Nakatsu et al.
2014), its rigor in clearly defining all necessary steps and the ending conditions, and
Fig. 1 Taxonomy development method (Nickerson et al. 2013, p. 345)
its flexibility in comparison to most other approaches because it integrates empirical

and conceptual research into one methodology. Hence, “readers of papers that present
taxonomies developed using [the] method can also be reasonably confident that the
taxonomy presented was developed in an established way” (Nickerson et al. 2013,
p. 354:354).
The taxonomy development method from Nickerson et al. (2013) contains seven
steps, which typically include several iterations Fig. 1. The first step is to define
a meta-characteristic directly addressing the purpose of the taxonomy. The meta-
characteristic must reflect the interests of the users of the taxonomy. All character-
istics defined later must be logical consequences of the meta-characteristic. Second,
the ending conditions must be defined. The methodology then runs through several
iterations. These iterations can either be empirical-to-conceptual, in which case com-
mon characteristics for selected objects are identified and grouped into dimensions
with corresponding characteristics, or conceptual-to-empirical, which means that
dimensions and characteristics are derived from theory and evaluated by objects that
fulfill these characteristics. During these iterations, it is important to understand that
the characteristics must be mutually exclusive and collectively exhaustive, meaning
that each object can be assigned to exactly one characteristic for each dimension. As
we will later see, this rule sometimes makes it necessary to split one existing dimen-
sion into two or more new dimensions because otherwise some objects (i.e., patterns
in our case) would have more than one characteristic for the same dimension. The
iterations end when the previously defined ending conditions are met.
We applied the taxonomy development method to our data sample of 182 business
model patterns that we identified and integrated in the Phases 1 and 2. We first
defined the meta-characteristic as the impact of the pattern on a business model’s
Fig. 2 Development of dimensions for the business model pattern taxonomy
elements (e.g., the value proposition). Second, we adopted the eight objective ending
conditions and five subjective ending conditions proposed by Nickerson et al. (2013)
(Appendix 1). Afterwards we ran through five iterations, which we have summarized
in Fig. 2.
We first decided on a conceptual-to-empirical iteration and defined five new
dimensions. Based on Amshoff et al. (2015) and Strauss and Frost (2014), who
found that business model patterns affect different hierarchical levels, we defined
the first dimension as a hierarchical level of impact, which can either be the holistic
business model, i.e., prototypical business model patterns, or business model build-
ing blocks, i.e., solution patterns. Furthermore, the meta-characteristic required us
to determine which business model elements were affected by the application of a
pattern. Therefore, we added four additional dimensions reflecting the four business
model components from Table 1: value proposition, value delivery, value creation,
and value capture. Afterwards, we examined patterns from our sample that addressed
these dimensions. The pattern solution provider is a prototypical pattern addressing
the whole business model, whereas the pattern razors/blades is a prototypical pattern
that addresses only certain elements. Furthermore, the pattern razors/blades affects
the value proposition dimension (by offering cheap prices) and the value capture
dimension (as it describes a pricing strategy). In addition to these two patterns, we
found that the pattern disintermediation addresses the value delivery dimension (as
it defines a new sales model) while the pattern from push-to-pull impacts the value
creation dimension (as it involves a new manufacturing methodology).
As the second iteration, we chose an empirical-to-conceptual cycle and added all
patterns from the three sources containing general, prototypical patterns (Andrew
and Sirkin 2006; Chatterjee 2013; Weill et al. 2005). To adequately classify these
instances and at the same time assure mutual exclusiveness and collective exhaus-
tiveness, we had to split the dimension value proposition. For instance, some patterns
describe different product types offered (e.g., physical landlord and financial land-
lord), whereas other patterns describe different strategies for differentiation (e.g.,
perceived value–based and brokerage). Therefore, we split the dimension value
proposition into two new dimensions: product type (adopted from Weill et al. 2005)
and strategy for differentiation. For the same reason, we also split the value capture
dimension by type of revenue model and impact on the profit.
In the third iteration, we again ran through an empirical-to-conceptual cycle and
classified all the remaining sources with general patterns (Gassmann et al. 2014;
Johnson 2010; Linder and Cantrell 2000; Osterwalder et al. 2010; Tuff and Wunker
2010). To adequately classify these patterns, we split the dimension value delivery
into target customers and value-delivery process; the dimension value creation was
divided into sourcing, third-party involvement, and value-creation process. Further-
more, we added the dimension pricing strategy.
During the fourth empirical-to-conceptual iteration, we added those e-business
patterns whose initial version stems from the internet boom that occurred around
the 2000s (Applegate 2001; Bienstock et al. 2002; Eisenmann 2001; Hanson 2000;
Hartman et al. 2000; Rappa 2001; Strauss and Frost 2014; Tapscott et al. 2000;
Timmers 1998; Weill and Vitale 2001). To better distinguish these patterns from the
previous ones, we included the dimension degree of digitization.
Finally, we added the remaining sources that contain e-business patterns from
recent years (Clemons 2009; Fleisch et al. 2014a; Wirtz et al. 2010). At this point,
we did not have to add any new dimensions or characteristics and had fulfilled all
objective and subjective ending conditions; hence, we conducted no further iterations.
Further details on each step are provided in Appendix 3, with the iterations shown
in the first column. The final taxonomy contains 12 dimensions, each having between
two and seven characteristics, which are further elaborated upon in the Results.
4 Results
In this section, we successively present and explain the results of the three steps of
our methodological approach: an overview of business model pattern literature, an
integrated list of existing business model patterns, and a taxonomy structuring the
patterns by their impact on a business model.
4.1 Overview of Business Model Pattern Literature
As described above, we identified 22 original articles as well as six reviews on

business model patterns. Original sources of business model patterns identify new
patterns and typically provide a description and one or several examples for each
pattern. The 22 original sources contain more than 300 business model patterns
(Table 4). Roughly two-thirds of the patterns relate to general businesses, while
one-third specifically addresses electronic (e-) businesses. The patterns differ by
their granularity, as they can either be prototypes of a company’s business model or
solution patterns addressing very specific aspects of a business model (Amshoff et al.
2015, pp. 5–6). While not all authors provide further details on the applied research
methodology, those who do either apply conceptual research, e.g., identify patterns
along the value chain, or empirical analyses of real-world business models. Within
their articles, the authors supply different approaches to structure the patterns. The
first group—mostly those presenting fewer than 10 patterns—arranges the patterns
in random order. The second group arranges the patterns alphabetically, and the third
group clusters the patterns according to several categories without providing further
details on the underlying criteria for clustering. The fourth group comprises authors
who explicitly use one or several dimensions to structure the patterns. For instance,
Timmers (1998, p. 7) arranges the patterns by degree of functional integration and
degree of innovation, whereas Weill et al. (2005, p. 1) use the rights to be sold (i.e.,
creator, distributor, landlord, broker) and the type of asset involved (i.e., financial,
physical, intangible, human). This group also includes Gassmann et al. (2014), who
supplement their alphabetical list with a mapping of each pattern on the affected
business model components.
In addition, we identified six reviews of business model patterns, each summa-
rizing the patterns of several original sources (Table 4). The most exhaustive review,
from Bonakdar et al. (2013), includes 13 original sources and 94 patterns. In contrast
to the other reviews, this review also includes industry-specific patterns. Three of the
six review articles filter for duplicate patterns (Abdelkafi et al. 2013; Afuah and Tucci
2000; Lam and Harrison-Walker 2003), whereas the others present all patterns that
are mentioned in the original sources under investigation. Most reviews structure the
patterns by author of the original source. An exception are Lam and Harrison-Walker
(2003, p. 20) arranging the patterns by their relational objectives (i.e., direct access,
network development, corporate communications) and their value-based objectives
(i.e., financial improvement, product/channel enrichment) as well as Abdelkafi et al.
(2013, p. 17) mapping each pattern with the affected business model dimensions.
As we are also conducting a review with this research, we added it to Table 5
(last row). Our review covers all 356 patterns mentioned in the 22 original sources
from Table 4. Thus, to the best of our knowledge, our review is significantly more
comprehensive than any other review to date has been. Furthermore, the patterns
were filtered for duplicates and organized along multiple dimensions. We elaborate
on both aspects in Table 5.
4.2 Integrated List of Business Model Patterns
The result of our second research phase is a database with 182 business model
patterns. The database contains all generic and e-business-specific business model
Table 5 Reviews of business model pattern literature

Author Original Number of Industry Filtered for Patterns
sources in patterns focus duplicates structured by
scope
Abdelkafi Andrew and 49 General Yes Author,
et al. (2013) Sirkin (2006), supplemented
Johnson by mapping
(2010), on affected
Osterwalder business
et al. (2010), model
Weill et al. dimension
(2005)
Afuah and Rappa (2001), 9 E-Business Yes n.a.
Tucci (2000) Timmers
(1998)
Bonakdar Becker et al. 94 General, No Author
et al. (2013) (2012), e-business,
Bienstock mobile
et al. (2002), platforms,
Camisón and textile
Villar-López industry,
(2010), project-based
Chatterjee firms, and the
(2013), Spanish
Ghezzi industry
(2012), Hodge
and Cagle
(2004), Kujala
et al. (2010),
Linder and
Cantrell
(2000), Rappa
(2001),
Tapscott et al.
(2000),
Timmers
(1998), Weill
and Vitale
(2001), Weill
et al. (2005)
Hedman and Applegate 43 E-Business No Author
Kalling (2001), Rappa
(2003) (2001),
Timmers
(1998)
(continued)
Table 5 (continued)
Author Original Number of Industry Filtered for Patterns
sources in patterns focus duplicates structured by
scope
Lam and Afuah and 33 E-Business Yes 2 dimensions:
Harrison- Tucci (2000), relational
Walker Eisenmann objectives,
(2003) (2001), value-based
Hanson objectives
(2000), Rappa
(2001),
Strauss and
Frost (2014)
Zott et al. Applegate 37 E-Business No Author
(2010) (2001), Rappa
(2001),
Tapscott et al.
(2000),
Timmers
(1998), Weill
and Vitale
(2001)
This research All 22 sources 356 (182 after General and Yes Multiple
from filtering) e-business dimensions
Table 4
patterns that were identified through a comprehensive literature review. Each pattern
in the database is described with further details. For instance, the database contains
the following information for the pattern razors/blades:
• Pattern name: Razors/blades
• Alternative pattern names: Cellphone, Razor and blade
• Description: offer a cheap or free basic product (“razor”) together with comple-
ments (“blades”) that are overpriced and thereby subsidize the basic product
• Examples: Gillette, Nespresso, Amazon Kindle
• Sources: Gassmann et al. (2014), Johnson (2010), Linder and Cantrell (2000)
The full list can be found in Appendix 2. Although the database already solves
two important shortcomings of the existing literature—it is exhaustive and free of
duplicates—its practical application would still be difficult as the simultaneous appli-
cation of 182 patterns for business model innovation is likely to be overwhelming
unless the relevant subset of patterns for a specific endeavor can be identified. In the
next part, we explain the taxonomy remedying this issue.
Dimension (D) Characteristics per dimension (number of patterns per characteristic)

D1: Hierarchical
Overarchi
Prototypical pattern (87) Solution pattern (95)

Impact
D2: Degree of Not necessarily digital
Purely digital (55) Digitally enabled (35)
Digitization (92)
D3: Product Product type
Intellectual
Value proposition
Type Physical (12) Financial (7) Human (5) Hybrid (10) not specified
property (36)
(112)
D4: Strategy for No impact
Access/
Differentiation Network on
Custom- Combinati con-
Quality (9) Price (22) effects differen-
ization (8) on (13) venience
(11) tiation
(6)
(113)
D5: Target Specific new No impact on
Lock-in existing Other companies
Value delivery
Customers customer segment target

customers (9) (B2B) (7)
(10) customers (156)
D6: Value- Customer
No impact on
Delivery Brand and Sales channel relationship
Sales model (9) delivery
Process marketing (7) (20) management
process (143)
(3)
D7: Sourcing No impact on sourcing
Make (17) Buy (11)
(154)
Value creation
D8: Third No impact on

Parties Multiple parties
Suppliers (9) Customers (12) Competitors (3) third parties
(18)
Involved involved (140)
D9: Value- No impact on
Creation Research and Multiple steps
Supply (5) Production (8) creation
design (7) (11)
Process process (151)
D10: Revenue No impact on
Intermediate
Model Sell (15) Lend (20) Advertising (12) revenue model
(18)
Value capture
(117)
D11: Pricing No impact on
Non-
Strategy Premium (11) Cheap (9) Dynamic (12) pricing strategy
transparent (8)
(142)
D12: Direct Increase revenue No direct profit
Reduce cost (15) Multiple effects (11)
Profit Effect (42) impact (114)
Fig. 3 Dimensions, characteristics, and number of business model patterns per characteristic
4.3 Taxonomy of Business Model Patterns
The patterns in the database are classified along the 12 dimensions of the taxonomy.
Each pattern is assigned to exactly one characteristic for each of the 12 dimen-
sions. Figure 3 Dimensions, characteristics, and number of business model patterns
per characteristic visualizes the 12 dimensions and possible characteristics as a
multidimensional matrix, which can also be referred to as a morphological box
(Zwicky 1967, p. 279). The dimensions (D) are grouped by those that are overar-
ching (D1–D2) and those affecting a specific business model component, i.e., value
proposition (D3–D4), value delivery (D5–D6), value creation (D7–D9), and value
capture (D10–D12), all of which are elaborated upon Fig. 3.
The overarching dimensions describe aspects affecting several business model
components simultaneously. The first dimension, hierarchical impact (D1), distin-
guishes whether a business model pattern describes a prototypical business model
(e.g., financial trader) or a solution pattern (e.g., channel maximization). Prototypical
patterns describe the general set-up of a company’s business model, whereas solution
patterns imply actions to change only sub-aspects of it. Furthermore, the patterns dif-
fer by their degree of digitization (D2). For instance, online brokers, such as Airbnb,
employ purely digital business models in which the operator is not required to own
major physical assets. E-retailers, such as Amazon, buy large amounts of physical
products and thus do not employ purely digital business models. However, as they
sell everything online, they still depend on digital technologies and are thus digitally
enabled. In contrast, the basic business model of physical manufacturers, such as
Pepsi, does not necessarily depend on digital technologies.
Patterns affect the value proposition in terms of either the type of product offered
(D3) or the strategy for differentiation (D4). Product types can be physical (e.g., phys-
ical manufacturer), financial (e.g., financial broker), human (e.g., advisors), intel-
lectual property (e.g., information collection), or hybrid (e.g., physical freemium).
Differentiation is then possible by quality (e.g., quality selling), customization (e.g.,
mass customization), combined offering (e.g., bundle elements together), conve-
nience (e.g., one-stop convenient shopping), price (e.g., low-touch approach), or
network effects (e.g., multi-sided platforms).
Value delivery is affected by either the target customers in focus (D5) or the
process of value delivery (D6). Some patterns propose focusing on a specific new
customer segment (e.g., own the undesirable), while others suggest locking in exist-
ing customers (e.g., digital lock-in) or focusing exclusively on business-to-business
(B2B) customers (e.g., value chain service provider). The value-delivery process
may be affected regarding brand and marketing (e.g., cool brands), sales channels
(e.g., bricks + clicks), sales model (e.g., disintermediation), or customer relationship
management (e.g., customer loyalty).
Patterns affect value creation in terms of sourcing (D7), third-party involvement
(D8), and the process of value creation (D9). Some patterns explicitly require internal
production, i.e., make (e.g., entrepreneur), whereas others propose purchasing the
products or services externally (e.g., physical wholesaler). Some patterns depend
on third-party involvement, such as suppliers (e.g., from push to pull), customers
(e.g., user designed), competitors (e.g., forced scarcity), or multiple parties (e.g.,
collaboration platforms). The value-creation process can be affected in terms of
innovation (e.g., open business models), supply (e.g., e-procurement), production
(e.g., self -service), or multiple steps (e.g., orchestrator).
The fourth business model component, value capture, is addressed by patterns
regarding the revenue model (D10), pricing strategy (D11), or profit (D12). The pro-
posed revenue models can be summarized as selling (e.g., product sales), lending
(e.g., rent instead of buy), intermediation (e.g., broker model), or advertising (e.g.,
free), while the proposed pricing strategies are premium (e.g., experience destina-
tion), cheap (e.g., one-stop, low price shopping), dynamic (e.g., auction), or non-
transparent (e.g., razors/blades). Patterns may directly impact profit either by aiming
to increase revenues (e.g., channel maximization) or reduce costs (e.g., self -service)
or by multiple effects (e.g., user designed).
5 Application of the Database for Business Model

Innovation
In business model innovation endeavors, the simultaneous application of all 182

identified patterns would be rather overwhelming. Even lists from single authors
such as Gassmann et al. (2014) with 55 patterns, Rappa (2001) with 50 patterns, or
Linder and Cantrell (2000) with 34 patterns can lead to a quite complex and unfocused
process. The business model pattern database reduces this complexity significantly,
as it helps to identify the relevant set of patterns for a specific purpose depending on
the specific situation of the innovating firm. For instance, the database can be used to
identify relevant patterns for the integration of a rough business idea or technological
innovation into a complete business model. In contrast, prior business model pattern
literature has mainly applied patterns during the first phases of the business model
innovation process, i.e., to analyze existing business models (e.g., Weill et al. 2005)
or for the generation of new business ideas (e.g., Gassmann et al. 2014).
To demonstrate the different uses of the database, we refer to the business model
innovation phases explained by Frankenberger et al. (2013, p. 249), spanning across
initiation, ideation, integration, and implementation. During initiation, the database
aids in better understanding existing business models by guiding the identification
of patterns currently employed. In the next step, ideation, the database allows for
systematic generation of ideas through transferring patterns to the focal company.
During integration, the database enables the development of complete business mod-
els by revealing patterns that can be combined with the initial ideas. Finally, during
implementation, the database serves as a glossary, linking to additional information
for the successful execution of each pattern. Table 6 summarizes the objective of
each phase, the role of the business model pattern database, and the results from its
application.
In the following we outline generic instructions on how to use the business model
pattern database during each phase. For simplicity, we present the phases sequen-
tially, even though iterations between phases (Frankenberger et al. 2013, p. 262) and
parallelization of phases (Osterwalder et al. 2010, p. 249) are necessary. Furthermore,
business model innovation itself is not a one-time project, but an iterative process
that must be anchored within every sustainable organization (Osterwalder et al. 2010,
p. 258).
5.1 Initiation
The objective of the initiation phase is to better understand the innovating firm’s own
business model as well as the surrounding ecosystem (Frankenberger et al. 2013,
p. 258). Furthermore, emerging technological, social, environmental, and organiza-
tional trends that might require business model change must be understood (Demil
and Lecocq 2010, p. 239). During this phase, business model patterns can be used to
Table 6 Usage of the pattern database during the business model innovation process
1. Initiation 2. Ideation 3. Integration 4. Implementation
Objective of Understand own Identify new Integrate ideas Pilot and
the phase business model ideas for into a complete commercialize the
and its business model business model designed business
surrounding innovation model
ecosystem
Role of the Identification of Iterative cycle of Systematic Glossary for relevant
business currently structure (select generation of background
model pattern implemented dimension for opportunities to information and
database patterns in the innovation) and specify the cases for
focal firm’s creativity missing implementation of
ecosystem (transfer business model involved patterns
patterns to own dimensions
business model) through
additional
patterns
Results from Overview of List of several Specified Success factors from
application of patterns business model business model prior
the database employed in ideas (i.e., by combining implementations of
own business patterns and a several patterns the pattern
model and description of
differences how to transfer
compared to them)
competitors
Source Phases adapted from Frankenberger et al. (2013)
make the underlying business logics of the company, its partners, and its competitors
more transparent (Tuff and Wunker 2010, p. 7).
Using the taxonomy structure of the database, one can identify the patterns imple-
mented in the focal company’s business model. To guide this process, the following
questions (amongst others) may be useful: What is the current strategy for differenti-
ation (D4)? Which third parties are directly involved in value creation (D8)? How are
revenues generated (D10)? Once the patterns implemented in the current business
model have been identified, they can be used to gain further insights: Have com-
petitors implemented identical or different patterns? Which companies from other
industries have implemented similar patterns? What can be learned from these com-
panies? Thus, by using the database, an analysis can be conducted along the different
dimensions, which is structured and systematic but also flexible enough to account
for the specific situation of the respective firm.
5.2 Ideation
The ideation phase aims to identify ideas for new business models (Frankenberger
et al. 2013, p. 259). From an analysis of 14 innovation cases, Frankenberger et al.
(2013, p. 262) found three recurring challenges hindering the generation of new
ideas: resistance in overcoming the existing business logic, not thinking in terms of
business models, and the absence of creativity tools supporting this process. Business
model patterns mitigate all three challenges. They aid in breaking with the current
business logic (Tuff and Wunker 2010, p. 7), already reflect the most critical elements
of a business model (Weill and Vitale 2001, p. 21), and boost creativity by thinking
in analogies with other industries (Johnson 2010, p. 130).
The database allows for the identification of the relevant subset of patterns for an
effective idea generation process. To do so, the results from the prior initiation phase
can be used. For instance, do the technological, social, environmental, or organiza-
tional trends have a particularly strong impact on any business model component?
Which dimension of the firm’s own business model has been identified as the weak-
est? On which dimensions have competitors innovated their business models? Is a
new strategy for differentiation required (D4)? Does the current business model gen-
erate sufficient profits (D12)? As these questions already indicate, the ideation phase
typically requires several iterations. It has therefore proven most efficient to alternate
between two steps. First, one should select of a subset of patterns from the database
by filtering for the corresponding dimensions and characteristics that these should
address. Second, one should try to transfer each pattern to the focal company during
a brainstorming phase. After each iteration, the best patterns and descriptions of how
to transfer them are logged into a continuously growing list of options for business
model innovation.
5.3 Integration
Business model patterns only describe the configuration of specific elements of a

business model (Abdelkafi et al. 2013, p. 14). Therefore, during integration, the
most promising ideas collected in the previous phase must be further developed into
complete business models (Frankenberger et al. 2013, p. 259), which requires the
specification of all business model dimensions (Gassmann et al. 2014).
The dimensions (D3–D12) of the database taxonomy serve as a checklist to assure
that value proposition, value delivery, value creation, and value capture were suffi-
ciently specified. As the patterns on the idea list from the previous phase are already
mapped on these dimensions, the missing pieces for each idea become transparent.
They can now be specified by searching the database for additional patterns that
address these missing dimensions. Of course, the missing dimensions could also be
specified manually, but the search for additional patterns and the combination of
these patterns with the initial idea results in more sophisticated innovations.
5.4 Implementation
The former three phases—initiation, ideation, and integration—all target the design
of a new business model, while the objective of the implementation phase is to com-
mercialize this new business model (Frankenberger et al. 2013, p. 263). Therefore,
projects must be initiated, milestones defined, a new organizational structure set up,
budget allocated, and so on (Osterwalder et al. 2010, p. 256). To reduce implemen-
tation risks, one can use experimentation, trial-and-error learning, and pilots (Sosna
et al. 2010, p. 383).
The translation of business model designs into concrete activities can be better
performed by using further tools, such as De Reuver et al. (2013) business model
roadmapping approach. Nonetheless, the business model pattern database provides
valuable information as input for this process, as patterns are derived from successful
implementations that can provide insights on success factors. In this phase, guiding
questions might include the following: How are the patterns typically implemented?
Which steps have other companies taken to implement them? What were the critical
factors for their successful implementation? For each pattern the database directly
refers to several sample companies that have implemented the pattern as well as to the
authors that have identified the pattern, who often provide further useful information
and sources.
6 Illustrative Case Study
To further clarify the instructions on using the pattern database during the business
model innovation process, we found it useful to provide a simplified, anonymized case
study. Automotive Aftermarket Inc., which is a division of a multinational company,
produces spare parts and primarily sells them to car repair shops. The rather broad
product portfolio of Automotive Aftermarket Inc. includes more traditional spare
parts, such as windscreen wipers or headlights, but also electronics, such as sensors
or actuators, and connectivity appliances, such as Bluetooth connectors for cars.
The company was facing increasing pressure from new competitors for several
of its products. Furthermore, market research revealed that technological and social
trends will reduce car use and car ownership in future, leading to a threatening
decline of the overall market. Therefore, Automotive Aftermarket Inc. has initiated
a business model innovation project with the objective of identifying new business
models better addressing the assumed changes in future consumer preferences. The
company assumed its competencies in electronics and connectivity appliances an
important facilitator for this, even though it was not mandatory for the new business
models to be directly related to them.
6.1 Initiation
The initial business model of Automotive Aftermarket Inc. was to sell high quality
spare parts. Surveying the database for such patterns (D4: strategy for differenti-
ation quality) revealed that the company has implemented the premium pattern,
gaining higher margins than its competitors. These high prices were enabled from
having implemented the pattern ingredient branding, i.e. consequently branding the
spare parts to make customers aware of brand and quality (D6: value delivery pro-
cess brand and marketing). In contrast, most competitors—often from Asia—-
focused on cost leadership for well-delimited product segments (D4: strategy for
differentiation price).
6.2 Ideation
The innovation process targeted the identification of completely new business mod-
els. Due to the increasing importance of digital technologies for the automotive sector,
Automotive Aftermarket Inc.’s wanted to further strengthen its digital capabilities.
Therefore, the first database query was used to identify generic business models
(D1: hierarchical impact prototypical pattern) that were purely digital or digitally
enabled (D2: degree of digitization purely digital OR digitally enabled). One idea
then was to adopt the pattern multi-sided platform by creating an integrated mobil-
ity platform for urban mobility, allowing customers to compare and book different
transport modes by integrating multiple transportation service providers. Ideas from
other iterations included the adoption of the marketplace exchange pattern for inter-
mediating between spare parts manufacturers and repair shops, the financial landlord
pattern to offer car insurance by using car connectivity sticks that the company was
already selling, the sensor as a service pattern for the collection and sale of data from
the sensors that the company was producing for cars, and the peer-to-peer pattern
for building a new peer-to-peer car sharing service.
6.3 Integration
Automotive Aftermarket Inc. decided to further specify the integrated mobility portal
business model, which was identified by adopting the pattern multi-sided platform.
Multi-sided platform is a prototypical pattern (D1) that is typically purely digital
(D2). It uses network effects as a differentiation strategy (D4), i.e., more customers
will make the platform more attractive for transportation service providers and vice
versa. To specify the other business model dimensions, further patterns from the
database were identified and integrated in a more complete business model: the
pattern long tail meant that the platform should primarily address customers who
plan non-recurring trips—not, for instance, daily commuters. The pattern customer
loyalty led to the idea of combining the platform with a reward program, while white
label resulted in the plan to allow the local authorities to co-brand the platform. The
pattern brokerage was adapted to define the revenue model via intermediation fees,
which should be supplemented by contextual mobile advertising, for which the target
location of each customer could be used. As a pricing strategy, it was decided to also
offer flat-rates with different travel volumes. Finally, the business model dimensions
that were still insufficiently defined (e.g., D3: the precise products and services to
be offered) were specified manually.
6.4 Implementation
In the case of Automotive Aftermarket Inc., the integrated mobility portal was piloted
in one city in a joint effort with the local authority. The database had revealed some
valuable information for the implementation of this pilot. For instance, Osterwalder
et al. (2010, p. 78) explain that the implementation of the pattern multi-sided platform
often involves a chicken-and-egg problem and therefore may require the subsidiza-
tion of a customer segment. One sample company that successfully implemented
the multi-sided platform pattern is Metro Newspaper: the free newspaper attracted
a large readership immediately after its launch, which made it very attractive for
advertisers and led to rapid profitability (Osterwalder et al. 2010, p. 79). This exam-
ple strengthened the idea of offering the portal to travelers for free but charging fees
from advertisers and, in a second stage, from transportation service providers.
7 Limitations of the Research
Our research is subject to limitations. First, taxonomies—in our case, the classi-
fication of business model patterns—cannot be universally perfect, but in the best
scenario are a useful solution to a specific problem (Nickerson et al. 2013, p. 341).
We argue that our taxonomy is useful for the specific challenges of business model
innovators when attempting to apply business model patterns, because the taxonomy
classifies the patterns by their impacts on the business model (which we chose as
meta-characteristic of the taxonomy). Furthermore, a comparison of our taxonomy
with research on business model components (e.g., Abdelkafi et al. 2013; Gordijn
et al. 2005; Osterwalder et al. 2010; Teece 2010) shows that most of our dimensions
and characteristics can be found in these sources. However, we did not merely copy
or combine existing business model concepts but rather derived the dimensions and
characteristics from analyzing hundreds of successfully executed examples of busi-
ness model innovation, i.e., business model patterns. Therefore, our taxonomy is not
only useful for classifying business model patterns but also a business model con-
cept describing the most important dimensions and characteristics for configuring a
business model. Second, we summarized more than 100 instances of business model
patterns as duplicates. However, even when two patterns possess similar names, their
original descriptions might differ slightly. We could have easily avoided this issue
by not filtering for duplicates, but we are convinced that the benefit of not having to
review identical or very similar patterns multiple times outweighs this disadvantage.
Third, the mapping of each pattern on the taxonomy dimensions might be biased
due to the subjective interpretations of the researchers. To avoid such bias, two
researchers discussed each rating. Furthermore, we conducted several cross-checks
by, for instance, comparing all patterns that were assigned to the same characteris-
tic of each dimension. Fourth, we do not consider our database to be an algorithm
for business model innovation but rather a heuristic tool to support a systematic pro-
cess. Hence, the database is not an automatic decision support system that determines
which pattern is the best; instead, it reveals potential solutions for a specific situation.
The selection of the best patterns for a company’s specific situation, however, requires
the expertise of managers who also must consider other factors, such as the com-
pany’s business strategy or the competitive landscape (Amshoff et al. 2015, p. 18). In
addition to expertise, the business model innovation process also requires significant
amounts of creativity and experimentation. Some potentially effective patterns might
not immediately appear attractive, while some patterns initially appearing attractive
might fail to deliver the desired outcomes. Finally, although we have demonstrated
the usefulness of the tool developed in all four generic phases of the business model
innovation process (Frankenberger et al. 2013), we also want to stress that business
model patterns primarily serve as tools for designing the front-end of a business
model, i.e., defining the necessary changes. The translation of these changes into
concrete activities and a transition path is no less important and can be better sup-
ported by other tools, such as De Reuver et al. (2013) business model roadmapping.
Therefore, our approach must be regarded not as a substitute but rather a complement
to these existing tools.
8 Future Research Opportunities
We see two important future research opportunities arising directly from this research.
First, only one original source of business model patterns (Fleisch et al. 2014a)
comes from within the last three years. However, we are facing a new wave of
digital transformation due to recent advances in digital technologies (Porter and
Heppelmann 2014, p. 13). Hence, the identification of new digital business model
patterns evolving from this transformation can make an important contribution for
theory and practice. Our business model pattern database provides a good structure
for systematically integrating these new patterns with existing research. Second,
the database presents a solid foundation for applying business model patterns to
a specific industry and identifying potential future business models. For instance,
Abdelkafi et al. (2013) transfer business model patterns to e-mobility and identify
several cutting-edge opportunities for new business models. In the future, the database
of business model patterns could be transferred to other industries that are also
undergoing fundamental changes, such as automotive, transportation, health, energy,
buildings, or machinery.
9 Conclusion
The objective of this research was to make the valuable existing knowledge of busi-
ness model patterns more accessible for both practical application as well as theoretic
enhancements of the concept. We addressed several shortcomings of the existing lit-
erature. Our review sheds light on the often confusing and contradictory use of the
business model pattern concept. It is the first of its kind, because it does not limit its
scope to a subset of authors or disciplines. The review integrates concepts from theory
with those from practitioners while advancing existing knowledge by systematically
structuring the business model pattern landscape. Furthermore, the business model
pattern database developed is a ready-to-use tool for business model innovators. The
database clearly describes 182 patterns and immediately reveals the relevant set of
patterns for a specific effect on the business model. In addition, the database can
be integrated into the business model innovation process. Hence, we hope for the
innovation of many future business models through the application of the business
model pattern database as well as the identification of further patterns that could be
added to the database in future.
Appendix 1
# Objective condition (OC)

OC1 All objects have been examined
OC2 No objects were merged or split in the last iteration
OC3 At least one object is classified under each characteristic
OC4 No new dimensions or characteristics were added in the last iteration
OC5 No dimensions or characteristics were merged or split in the last iteration
OC6 Each dimension is unique
OC7 Each characteristic is unique within its dimension
OC8 Each cell is unique and not repeated
Source Nickerson et al. (2013)

# Subjective condition (SC)

SC1 Concise: the taxonomy contains a limited number of dimensions
SC2 Robust: the dimensions and characteristics provide sufficient differentiation among
objects to be of interest
SC3 Comprehensive: all objects can be classified and all dimensions of interest are
identified
SC4 Extendible: new dimensions and characteristics can easily be added
SC5 Explanatory: the dimensions and characteristics contain useful information about the
objects of interest
Source Nickerson et al. (2013)
Appendix 2: Integrated List of Business Model Patterns
Pattern name Description Selected example(s) Source(s)

Add-on Offer a basic product Ryanair, SAP, Sega Gassmann et al.
at a competitive price (2014)
and charge for several
extras
Advertising model Provide a product or Google, Zattoo, Gassmann et al.
(ad-supported, content service and mix it with Spotify (2014), Hanson
sponsorship, hidden advertising messages (2000), Hanson
revenues) (2000), Rappa (2001),
Tuff and Wunker
(2010)
Advisors Provide consulting Accenture, IBM Applegate (2001)
and advice
Affiliation (prospect Refer customers to a Pinterest, Barnes & Gassmann et al.
fees) third party and receive Noble, Amazon.com (2014), Hanson
a commission for a (2000), Rappa (2001)
specific transaction
completed (e.g., click,
give information, buy
product)
Affinity clubs Partner with MBNA Johnson (2010)
membership
associations and other
affinity groups to offer
a product exclusively
to its members
(continued)
(continued)
Agent models (sales Represent the buyer or Expedia.com, estate Hanson (2000),
commissions) the seller and earn agents Strauss and Frost
commissions for (2014)
successful facilitation
of transactions
Aggregation Build a specific form Amazon, Applegate (2001),
(aggregator, of broker preselecting Homeadvisor Bienstock et al.
distributor, multi-party products/services and (2002), Linder and
market aggregation) target Cantrell (2000),
audience—hence, key Rappa (2001),
process is matching of Tapscott et al. (2000)
needs
Agora (exchange) Build a specific form eBay, Priceline, Applegate (2001),
of broker allowing NASDAQ Bienstock et al.
buyer and seller to (2002), Tapscott et al.
freely negotiate and (2000)
assign value to
goods—hence, key
process is price
discovery
Aikido Offer products to the Cirque du Soleil, Gassmann et al.
customer that are the Nintendo Wii (2014)
opposite of what the
competitors are
offering, thereby
making competitor’s
strengths a weakness
Application service Allow customers to Oracle Business Applegate (2001),
providers (vertical use software that is online, DoubeTwist Eisenmann (2001)
infrastructure portals) hosted on remote
servers for continuous
service fee
Auction (auction Make customers name Sotheby’s, eBay, Applegate (2001),
broker, e-auction, the maximum price Google Bienstock et al.
exchange, product they are willing to (2002), Gassmann
bids) pay; the highest price et al. (2014), Hanson
wins the product or (2000), Johnson
service (2009), Rappa (2001),
Timmers (1998), Tuff
and Wunker (2010)
Audience Conduct market Nielsen//Netratings Rappa (2001)
measurement services research on online
audience as agency for
other customers
(continued)
(continued)
Banner advertising Place advertising TechWeb, Lycos Hanson (2000), Rappa
(infomercials, banners on websites (2001)
ultramercials,
advertising networks,
banner exchange,
pay-per-click)
Barter Allow customers to Pepsi, Pay with a Bienstock et al.
trade a non-monetary Tweet (2002), Gassmann
compensation in et al. (2014)
exchange for a
product or service
Brand integrated As manufacturer of Red Bull Rappa (2001)
content other products create
content for the sole
basis of product
placement
Breakthrough markets Invest in opening new AIG Insurance Linder and Cantrell
markets to gain at least (2000)
a temporary monopoly
Bricks + clicks (click Integrate both an Home Depot, Tesco, Johnson (2009),
and mortar) online (clicks) and an REI Rappa (2001)
offline (bricks)
presence to browse,
order, and pick up
products
Brokerage Bring together and NASDAQ, Century 21 Chatterjee (2013),
(switchboard, network facilitate transactions Linder and Cantrell
efficiency, open between buyers and (2000), Johnson
market-making) sellers, charging a fee (2010), Tuff and
for each successful Wunker (2010)
transaction
Bundle elements Make purchasing iPod and iTunes, fast Hanson (2000),
together (bundled simple and more food value meals Johnson (2009),
pricing, bundling complete by Johnson (2010), Tuff
sales) packaging related and Wunker (2010)
products together
Business intelligence Gather secondary and Oil companies for gas Strauss and Frost
primary information prices, traders (2014)
about competitors,
markets, customers,
and other entities to
predict important
information
(continued)
(continued)
Buy/sell fulfillment Take customer orders CarsDirect, Rappa (2001)
to buy or sell a Respond.com
product or service,
including terms like
price and delivery
Buying club Round up buyers with Letsbuyit.com, Linder and Cantrell
attractive prices and mobilcom-debitel (2000)
use purchase volume
to gain discounts
Channel maximization Leverage as many AOL, Time Warner Linder and Cantrell
channels as possible (2000)
to maximize revenues
Classifieds List items for sale or Monster.com, Rappa (2001)
things of interest and Craigslist
charge listing or
membership fees in
exchange
Collaboration Provide a set of tools Deutsche Timmers (1998)
platforms and an information Telekom/Globana’s
environment for ICS, ESPRIT
collaboration between GENIAL
enterprises
Connection (internet Provide physical AOL, Sprint, AT&T Eisenmann (2001),
access provider, and/or virtual network Applegate (2001),
horizontal infrastructure to gain Rappa (2001), Wirtz
infrastructure portals, (internet) access et al. (2010)
internet services
providers)
Content provider Provide content such Reuters, Wall Street Applegate (2001),
(information and as information, digital Journal online, IEEE Clemons (2009),
service providers, products, and services Journals Eisenmann (2001),
selling content, online Rappa (2001), Strauss
content providers, and Frost (2014),
content publisher, Weill and Vitale
content, content (2001), Wirtz et al.
services) (2010)
Content-targeted Identify the meaning Google Rappa (2001)
advertising of a web page and then
automatically deliver
relevant ads when a
user visits that page
(continued)
(continued)
Context Sort and/or aggregate Google Wirtz et al. (2010)
available online
information
Contextual mobile Tailor advertising to Google AdSense, Clemons (2009)
advertising the context, e.g., CommuteStream
location, preferences,
or status
Contractor Sell services provided Accenture, Federal Weill et al. (2005)
primarily by people, Express
such as consulting,
construction,
education, personal
care, package delivery,
live entertainment, or
healthcare
Cool brands (branded Earn premium prices Goodyear, Nike Hanson (2000), Linder
reliable commodity, with competitive and Cantrell (2000)
brand building) products through
expert brand
marketing
Cost leadership Keep variable costs Ikea Tuff and Wunker
low and sell high (2010)
volumes at low prices
Cost reduction Use the Internet to Cisco Hanson (2000)
[through the internet] reduce costs and thus
increase efficiency
Cross selling Offer complementary Shell, Tchibo, Aldi Gassmann et al.
products in addition to (2014)
the standard offering
Crowdfunding Finance a product, Marillion, Pebble Gassmann et al.
project, or company Technology, (2014)
by a group of private Brainpool
investors often
including a
non-monetary
compensation in
exchange
Crowdsourcing Solve a problem by Cisco, Procter & Gassmann et al.
outsourcing it to the Gamble, InnoCentive (2014), Johnson
crowd (e.g., an (2010)
internet community)
(continued)
(continued)
Custom suppliers Design, produce, and Boeing, McGraw-Hill Applegate (2001)
distribute customized
products and services
Custom suppliers of Produce and Dell, MicroAge Applegate (2001)
hardware customize IT
equipment or
components
Custom suppliers of Create and customize Andersen Consulting, Applegate (2001)
software software and Sapient, Viant
license/sell it
Customer loyalty Increase customer American Airlines, Gassmann et al.
(incentive marketing) loyalty through Safeway Club Card, (2014), Rappa (2001)
reward programs Payback
Customer relationship Retain and grow Companies applying Strauss and Frost
management [through business and salesforce.com (2014)
digital technologies] individual customers
through strategies that
ensure their
satisfaction with the
company and its
products, e.g., by
collecting and
integrating all
information on each
customer touch point
Database marketing Collect, analyze, and GM Card, Strauss and Frost
disseminate electronic Blockbuster Inc. (2014)
information about
customers, prospects,
and products to
increase profits
De facto standard Develop and use Sharp in flat panel Linder and Cantrell
proprietary displays (2000)
component
technology to provide
high product
functionality, but also
license it broadly
throughout the
industry to establish it
as the dominant design
Dealer support Use the internet to GM Hanson (2000)
[through the internet] indirectly support
sales partners
(continued)
(continued)
Demand collection Let prospective buyers Priceline.com Rappa (2001)
system make a final (binding)
bid for a specified
good or service and
arrange fulfillment
Dial down features Target less-demanding Motofone Johnson (2009)
consumers with
products or services
that may not be
superior but are
adequate and perhaps
more convenient,
simple, etc.
Digital add-on A physical asset is Navigation systems Fleisch et al. (2014)
sold at a small margin;
over time, the
customer can purchase
or activate any number
of digital services
with a higher margin
Digital lock-in Use digital Apple’s iPhone Fleisch et al. (2014)
technologies to limit
the compatibility of
physical products and
thus lock customers to
your ecosystem
[Digital] infrastructure Take control of CompUSA.com, Applegate (2001)
retailers ([digital] inventory and sell Staples.com
infrastructure digital infrastructure
marketplaces, [digital]
infrastructure
exchanges)
[Digital] service Produce and deliver a American Express, Applegate (2001)
provider wide range of services Citigroup
online
Digitally-charged Charge classic Smart washing Fleisch et al. (2014)
products physical products with machine, smart home
a bundle of new
sensor-based digital
services and position
them with new value
propositions
Digitization Offer a traditionally Wikipedia, Netflix, Gassmann et al.
physical product as a Dropbox (2014)
digital version
(continued)
(continued)
Disaggregated pricing Allow customers to Free Mobile Tuff and Wunker
buy exactly—and (2010)
only—what they want
Disintermediation Deliver a product or Dell, Nespresso, Gassmann et al.
(manufacturer direct service that has WebMD (2014), Johnson
model, direct selling, traditionally gone (2009), Johnson
multi-level marketing, through an (2010), Rappa (2001),
direct to customer) intermediary directly Strauss and Frost
to the customer (2014), Weill and
Vitale (2001)
Distributive network Provide infrastructure Enron, UPS, AT&T Tapscott et al. (2000)
to connect other actors
of the economy such
as logistics, energy,
mobility, or
communication
Do more to address Look beyond your UPS Johnson (2009)
the job typical offering and
address other jobs
your customers are
trying to get done
Educators Create and deliver Harvard Business Applegate (2001)
educational offerings, School
often online
Efficiency-based Use human or capital Airlines, mining, Chatterjee (2013)
resources efficiently to hospitals
produce
commonalities in a
competitive market
E-mail Communicate with Online mailings of Strauss and Frost
stakeholders via companies, digital (2014)
e-mails rather than annual reports
print and mail
E-mall (virtual Build a platform for a Electronic Mall Rappa (2001),
marketplace) collection of e-shops, Bodensee, Merchant Timmers (1998)
usually enhanced by a Services at
common umbrella, for Amazon.com
example, of a
well-known brand
Enterprise resource Use an integrated back Companies using SAP Strauss and Frost
planning office system to (2014)
optimize business
processes and thereby
reduce cost
(continued)
(continued)
Entrepreneur Create and sell Kleiner, Perkins, Weill et al. (2005)
financial assets, often Caufield & Byers
creating and selling
firms
E-procurement (online Conduct tendering and Japan Airlines, Strauss and Frost
purchasing) procurement Wal-Mart (2014), Timmers
electronically (1998)
E-retailer (commerce, Assume control of Amazon.com, Applegate (2001),
catalog merchant, inventory, set a LandsEnd.com, Eisenmann (2001),
virtual merchant) non-negotiable price, Walmart.com Rappa (2001), Wirtz
and sell physical et al. (2010)
products online
E-shop (e-commerce, Build a web shop to Fleurop, Travelocity, Gassmann et al.
order processing) sell products or Flyeralarm (2014), Strauss and
services online Frost (2014), Timmers
(1998)
Exclusive Bring together Edu.com, Linder and Cantrell
market-making specific, highly Orderzone.com (2000)
targeted, qualified
audiences for trading
Experience Use a carefully Disney theme parks, Gassmann et al.
destination designed environment Nike Town Stores, (2014), Linder and
(experience selling) to attract customers Nestlé Nespresso Cantrell (2000)
who pay premium
prices
Experience selling Allow the client to Mary Kay Cosmetics, Linder and Cantrell
experience the Amway (2000)
product, often via a
sales force and a
pyramid commission
structure; traditionally
applied for cosmetic
products
Financial broker Match buyers and e*Trade, Schwab Weill et al. (2005)
sellers of financial
assets
Financial landlord Let others use cash (or Bank of America, Linder and Cantrell
(financing, instant other financial assets) Fannie Mae, Aetna (2000), Tuff and
gratification) under certain (often Wunker (2010), Weill
time-limited) et al. (2005)
conditions
(continued)
(continued)
Financial trader Buy and sell financial Merrill Lynch Weill et al. (2005)
assets without
significantly
transforming (or
designing) them
Flat-rate Charge a fixed price Buckaroo Buffet, Gassmann et al.
and allow the Sandals Resorts, (2014)
customer unlimited Netflix
access in exchange
Flexible pricing Vary prices for an American Airlines Strauss and Frost
(dynamic pricing offering based on (2014), Tuff and
strategies online) demand Wunker (2010)
Forced scarcity Limit the supply of OPEC, Rue La La Tuff and Wunker
offerings available to (2010)
drive up demand and
prices
Fractional ownership A good is purchased Time-sharing condos, Gassmann et al.
together by a group of Net Jets, écurie25 (2014), Johnson
customers, each (2010)
buying a certain share
of the usage right,
often a time period
Franchising Allow franchisees to Starbucks, Subway, Gassmann et al.
use a business McDonald’s (2014)
concept, including
brand and products, in
compensation for
financial
compensation
Free (free for Provide customer with Metro (free paper), Linder and Cantrell
advertising) a free-of-charge offer private TV stations, (2000), Osterwalder
and use other sources Google and Pigneur (2010)
such as advertising to
generate revenues
Freemium (free trial) Offer basic services Skype, Dropbox, Gassmann et al.
for free, while LinkedIn (2014), Hanson
charging a premium (2000), Johnson
for advanced or (2009), Johnson
special features (2010), Tuff and
Wunker (2010)
(continued)
(continued)
From push-to-pull Make production Toyota, Zara, Dell Gassmann et al.
more flexible in order (2014)
to ideally produce a
product just when it is
ordered and not
upfront as stock article
Haggle Allow the buyers to www.hagglezone.com Bienstock et al. (2002)
negotiate over the
price
Horizontal portals Create a portal that Yahoo!, Microsoft’s Applegate (2001),
(portals, portal) provides a gateway to MSN Eisenmann (2001),
Internet’s content and Rappa (2001), Strauss
offerings, such as and Frost (2014)
search engine, e-mail,
news etc.
HR broker Match buyers and Robert Half, EDS Weill et al. (2005)
sellers of human
services
Incomparable Use deep R&D skills Polaroid, DuPont Linder and Cantrell
products to develop and exploit (2000)
(incomparable proprietary
service) technology to offer
unique products that
command high
margins
Infomediary Match buyers and Internet Securities, Applegate (2001),
(information brokers, sellers of information Individual.com, Hartman et al. (2000),
IP broker) or other intangible Valassis Rappa (2001),
assets Timmers (1998),
Weill et al. (2005)
Information collection Collect and DoubleClick, Google Hanson (2000)
commercialize
information gathered
from the Internet
Infrastructure services Produce and deliver DoubleClick, Federal Applegate (2001),
firms (e-business complementary Express, Webvan Hartman et al. (2000)
enabler) services for the
Internet
Ingredient branding Build a brand of a Intel, Carl Zeiss, Gassmann et al.
(category-building) product component Bosch (2014)
that is part of an end
product
(continued)
(continued)
Integrator Cover most parts of Carnegie Steel, Ford, Gassmann et al.
the value chain Exxon Mobil (2014), Andrew and
in-house in order to Sirkin (2006)
keep control of
innovations, efficiency
etc.
Inventor Create and then sell Lucent’s Bell Labs Weill et al. (2005)
intangible assets, such
as patents and
copyrights
IP trader (bit vendor) Buy and sell NTL Inc., Apple Rappa (2001), Weill
intangible assets iTunes Music Store et al. (2005)
[IT] Produce IT equipment IBM, Compaq, Cisco Applegate (2001)
equipment/component and components
manufacturers
Knowledge Transform and store a Companies using an Strauss and Frost
management [through company’s data into internal Wiki (2014)
use of digital useful information and
technologies] knowledge
Leverage customer Collect customer data Twitter, 23andMe, Gassmann et al.
data (selling and use them Facebook (2014), Clemons
information gathered commercially, e.g., for (2009), Rappa (2001)
from online targeted advertising
experience, user
registration)
Leverage new Win over influencers Hindustan, Unilever Johnson (2009)
influencers who support the sales
process
Licensing (the License or otherwise Microsoft Andrew and Sirkin
licensor, IP landlord, get paid for limited (2006), Gassmann
license) use of intangible et al. (2014), Rappa
assets (2001), Tuff and
Wunker (2010), Weill
et al. (2005)
Lock-in Lock the customers to Lego, Fleisch et al. (2014),
your ecosystem by Hewlett-Packard, Gassmann et al.
strongly increasing the Nestlé BabyNes (2014)
switching costs
through high hurdles
(continued)
(continued)
Low-touch approach Offer standardized, Southwest airlines, Gassmann et al.
(no frills, low-price low-price version of a Xiameter (2014), Linder and
reliable commodity, product or service that Cantrell (2000),
standardization) is traditionally Johnson (2009),
customized and higher Johnson (2010)
priced
Make more of it Offer internal Porsche Consulting, Gassmann et al.
know-how and other Festo Didactic, (2014)
resources also as Amazon Web Services
external service to
other companies
Marketplace exchange Build a specific form Orbitz, ChemConnect Rappa (2001)
of broker also offering
a full range of services
covering the
transaction process,
from market
assessment to
negotiation and
fulfillment for an
industry consortium
Mass customization Customize a Dell, mymuesli Gassmann et al.
(mass-customized commodity product to (2014), Linder and
commodity) the customers’ Cantrell (2000),
specific preferences Strauss and Frost
(2014)
Membership Charge a time-based Costco, Metro Tuff and Wunker
payment to allow (2010)
access to locations,
offerings, or services
that non-members do
not have
Merchant model Act as Wal*Mart, Bienstock et al.
(sales) wholesalers/retailer of Mediamarkt (2002), Rappa (2001)
goods and services
Micro transactions Sell many items for as Kartrider Tuff and Wunker
little as a dollar—or (2010)
even only one
cent—to drive
impulse purchases
(continued)
(continued)
Misdirection Send customers to Google, Yahoo Clemons (2009)
locations different
from what they
initially searched for
if the searched
company did not pay
sufficient listing fees
to the search engine
Multi-sided platforms Bring together two or Visa, Microsoft Gassmann et al.
(two-sided market) more distinct but Windows, Metro (2014), Osterwalder
interdependent groups Newspaper and Pigneur (2010)
of customers, where
the presence of each
group creates value
for the other groups
Negative operating Generate high profits Amazon, Next Gassmann et al.
cycle (alter the usual by maintaining low Restaurant, Groupon (2014), Johnson
formula, float, cash inventory and having (2009), Johnson
machine) the customer pay up (2010), Tuff and
front Wunker (2010)
Network value Provide a platform Microsoft, Netflix, Chatterjee (2013)
that leads to repeated Playstation
purchases by a core
group of loyal
customers
Networked utility Create and distribute ICQ, Acrobat Reader Eisenmann (2001)
providers downloadable
software programs
that facilitate
communication
Object self service Provide physical Smart heating Fleisch et al. (2014)
products with the systems, Internet
ability to refrigerator
independently place
orders on the Internet
One-stop convenient Use broad selection WW Grainger Linder and Cantrell
shopping and ubiquitous access (2000)
to attract busy buyers
who will pay a
premium for
convenience
(continued)
(continued)
One-stop low-price Use low price and the Walmart, Linder and Cantrell
shopping convenience of broad SupplyGenie.com (2000)
selection to attract
buyers, then convert
volume into purchase
discounts
Online advertising and Buy advertising on Product advertising in Strauss and Frost
public relations products or services of radio, TV, or Internet (2014)
another companies
Online brokers Use the internet to ebay, Airbnb Bienstock et al.
(brokerage model, facilitate a transaction (2002), Hartman et al.
third-party between a buyer and a (2000), Rappa (2001),
marketplace, seller Strauss and Frost
marketplace, (2014), Timmer 1998,
intermediary, broker, Weill and Vitale
metamediary, (2001)
e-business storefront)
Online sales Use the internet to Companies selling via Strauss and Frost
promotions send free product Groupon (2014)
samples or discount
coupons to customers
Open business models Create innovations by Procter & Gamble, Gassmann et al.
systematically Innocentive (2014), Osterwalder
integrating partners and Pigneur (2010)
into the company’s
R&D process
Open content (public Develop openly Wikipedia, The Rappa (2001)
broadcasting) accessible content Classical Station
collaboratively by a
global community of
contributors who work
voluntarily
Open source (alliance) Develop a product not Mozilla, Linux, Gassmann et al.
by a company, but by Wikipedia (2014), Rappa (2001),
a public community Tapscott et al. (2000)
with all information
being available
publicly
Orchestrator (value Focus on core Procter & Gamble, Andrew and Sirkin
chain) competencies and Nike, Li & Fung (2006), Gassmann
outsource/coordinate et al. (2014), Timmers
all other activities (1998)
along the value chain
(continued)
(continued)
Own the undesirable Seek to serve AllLife Johnson (2009)
segments of the
market that might not
appear immediately
attractive
Pay per use (metered Charge for each use of Metered ISPs, Google, Gassmann et al.
use, metered a product or service Zipcar (2014), Hanson
subscriptions, (2000), Johnson
pay-as-you-go, utility (2010), Rappa (2001),
model) Tuff and Wunker
(2010)
Pay what you want Invite customers to set Radiohead, One Gassmann et al.
(user-defined) the price they wish to World Everybody, (2014), Tuff and
pay Humble Bundle Wunker (2010)
Peer-to-peer Facilitates a ebay, Napster, Airbnb Gassmann et al.
(Person-to-person transaction among (2014), Rappa (2001)
networking services) peers, i.e., two or
more consumers,
through provision of a
platform
Perceived value-based Position company’s Semiconductors, Chatterjee (2013)
output as a “want” software firms,
item and command a pharma
price premium - invest
in knowledge
professionals such as
scientists, engineers,
programmers, or data
experts
Performance-based Determine the fee for Rolls-Royce, BASF, Fleisch et al. (2014),
contracting usage of a product not Xerox Gassmann et al.
by frequency of use (2014)
but rather by the
quality of the result
from the use
Physical broker Match buyers and eBay, Century 21 Weill et al. (2005)
sellers of physical
assets
Physical freemium A physical asset that Android smartphones Fleisch et al. (2014)
is sold together with
free digital services
while charging a
premium for advanced
digital services
(continued)
(continued)
Physical landlord Sell the right to use a Marriott, Hertz Weill et al. (2005)
physical asset
[Physical] Create and sell Ford, Pepsi, General Applegate (2001),
manufacturer physical assets Motors Weill et al. (2005)
[Physical] wholesaler Buy and sell physical Wal*Mart, Amazon Rappa (2001), Weill
(retailer) assets et al. (2005)
Premium Price at a higher Lexus Tuff and Wunker
margin than (2010)
competitors for a
superior product,
offering, experience,
service, or brand
Product as point of Make physical Smartphones, cars Fleisch et al. (2014)
sales products become sites
of digital sales and
marketing services
that the customer
consumes directly at
the product or
indirectly via another
device
Product sales Sell a product for a Dell Hanson (2000), Rappa
(purchase) fixed price (2001)
Quality selling Attract customers with Saks Fifth Avenue, Hanson (2000), Linder
(enhance quality) high quality and/or Nordstrom and Cantrell (2000)
hard-to-find products
or services for
premium prices
Query-based paid Sell favorable link Google, Overture Rappa (2001)
placement positioning or
advertising keyed to
particular search terms
in a user query
Razors/blades Offer a cheap or free Gillette, Nespresso, Gassmann et al.
(cellphone) basic product Amazon Kindle (2014), Johnson
(“razors”) together (2009), Johnson
with complements (2010), Linder and
(“blades”) that are Cantrell (2000)
overpriced and
thereby subsidize the
basic product
(continued)
(continued)
Reliable commodity Provide predictable UPS, AT&T, Hilti Linder and Cantrell
operations commodity products (2000), Gassmann
(guaranteed or services for which et al. (2014)
availability) customers are willing
to pay a small
premium, as they are
reliable
Remote usage and Equip products with Rolls-Royce, Brother Fleisch et al. (2014)
condition monitoring digital technologies
that allow to detect
errors preventatively
and monitor usage
Rent instead of buy Temporarily lend a Xerox, fashionette, Gassmann et al.
(lease instead of sell, product to the United Rentals (2014), Johnson
leasing, lease) customer and charge a (2009), Johnson
rent (2010), Rappa (2001)
Revenue sharing Share the revenues Cdnow, Apple Gassmann et al.
(retail alliances) with other companies AppStore, Groupon (2014), Hanson
in order to create a (2000), Rappa (2001)
symbiotic relationship
Reverse auction Set a ceiling price for Elance.com, Bienstock et al.
a product or service OnForce.com (2002), Johnson
and have participants (2010)
bid the price down
Reverse engineering Break down a product Bayer, Brilliance Gassmann et al.
of competitors into its China Auto, Pelikan (2014)
components and use
this information to
build a comparable
product
Reverse innovation Transfer cheaper General Electric, Gassmann et al.
products from less Logitech, Renault (2014)
developed countries to
more developed
countries
Reverse razors/blades Offer an expensive iPod/iTunes Johnson (2010)
basic product
(“razors”) that allows
for usage of cheap or
even free
complements
(“blades”)
(continued)
(continued)
Risk sharing Waive standard fees or Progressive Tuff and Wunker
costs if certain metrics (2010)
are not achieved, but
receive outsized gains
when they are
Robin Hood Charge wealthy Museums, Aravind Gassmann et al.
customers more than Eye Care System, (2014)
poorer customers for a TOMS Shoes
product or service
Scaled transactions Maximize margins by Morgan Stanley Tuff and Wunker
pursuing high-volume, (2010)
large-scale
transactions when unit
costs are relatively
fixed
Search agent Search out the price Idealo.de Rappa (2001)
and availability for a
good or service
specified by the buyer
Self-service Delegate a part of the McDonald’s, IKEA, Gassmann et al.
value chain to the BackWerk (2014)
client
Selling experience Offer new experiences GameBox, World of Clemons (2009)
through participation Warcraft
in a community, often
virtually
Selling online services Offer to use software E*Trade, Survey Clemons (2009)
services online Monkey
Selling virtual Sell accessories that World of Warcraft, Clemons (2009)
accessories would be difficult to Second life
earn in online games
Sensor as a service Collect, process, and Streetline.com, Fleisch et al. (2014)
sell sensor data for a Google Maps
fee
Service-wrapped Distinguish Mindspring, Earthlink Linder and Cantrell
commodity commodity products (2000)
by services that are
added
Servitization of Sell ongoing services IBM, Hilti, Zipcar Johnson (2010)
products in addition to the
(product-to-service) product or even sell
the service the product
performs rather than
the product
(continued)
(continued)
Shared infrastructure Share a common ABACUS Weill and Vitale
infrastructure among (2001)
several competitors
Shop-in-shop (develop Build a store within Tchibo, Deutsche Gassmann et al.
unique partnerships) another store Post, MinuteClinic (2014)
Social search Tailor search results Facebook, Airbnb Clemons (2009)
based on a user’s
social network
Software firms Create software and Microsoft, Oracle, Applegate (2001)
license/sell it Siebel
Solution provider Provide a full range of Apple iPod/iTunes, Gassmann et al.
(comprehensive services in one Heidelberger (2014), Linder and
offering, full-service domain directly and Druckmaschinen Cantrell (2000), Weill
provider) via allies and attempt and Vitale (2001)
to own the primary
consumer relationship
Subscription Continuously provide Magazines, Gassmann et al.
(subscription model, customers with Blacksocks, Spotify (2014), Hanson
subscription club, products or services (2000), Johnson
membership) and regularly charge (2010), Rappa (2001),
upfront fees Tuff and Wunker
(2010)
Supermarket Offer a large variety of Toys “R” Us, The Gassmann et al.
(cat-daddy selling) products at a low price Home Depot, Staples (2014), Linder and
Cantrell (2000)
Supplier support Use the Internet to GE Hanson (2000)
[through the internet] improve procurement
and speed of delivery
from suppliers
Supply chain Connect suppliers and FedEx Strauss and Frost
management distribution channels (2014)
more closely
Target the poor Focus on the Wal*Mart, Aldi Gassmann et al.
bottom-tier clients of (2014)
the income pyramid
and sell a large
number of cheap
products with low
margin
(continued)
(continued)
The long tail Focus on selling a Netflix, eBay, Gassmann et al.
large number of niche YouTube (2014), Osterwalder
products, each of and Pigneur (2010)
which sells relatively
infrequently
Transaction service Provide integrated Celarix, Solbright, Hartman et al. (2000),
and exchange portal to coordinate PrintConnect Linder and Cantrell
intermediation complex transactions (2000)
(infrastructure among involved
provider) several parties for spot
markets
Trash-to-cash Reuse already used Duales System Gassmann et al.
products Deutschland, H&M, (2014)
cmr
Trust intermediary Provide a third-party PayPal, Escrow.com, Hartman et al. (2000),
(transaction broker) payment mechanism CyberCash Rappa (2001)
for buyers and sellers
to settle a transaction
Trust services Establish membership Truste Rappa (2001)
associations that abide
by an explicit code of
conduct, and in which
members pay a
subscription fee
Trusted product Develop long-lasting Cisco, Intel Linder and Cantrell
leadership product platform (2000)
architectures to create
a non-disruptive
product upgrade path
for locked-in
customers
Ultimate luxury Focus on selling to the Lamborghini, Abbot Gassmann et al.
top-tier customers of Downing (2014)
the income pyramid
Unbundling Unbundle three types mobile telecom Osterwalder and
of busi- industry, private Pigneur (2010)
nesses/organizational banking industry
units within one firm
as they all have
different imperatives:
customer relationship,
product innovation,
and infrastructure
(continued)
(continued)
Under the umbrella Under-price the Prime Computer with Linder and Cantrell
pricing market leader and use Digital Equipment in (2000)
marketing to convince the 1980s, MCI
customers your WorldCom with
offerings are AT&T
equivalent, fast follow
in product/service
development
User designed Customers invent Apple AppStore, Gassmann et al.
products that Createmytattoo, Lego (2014)
afterwards are Factory
produced by the
company
Value chain integrator Coordinate activities Seven Eleven, Timmers (1998), Weill
(value net integrator) across the value net by ESPRIT project and Vitale (2001)
gathering, TRANS2000
synthesizing, and
distributing
information
Value chain service Only support parts of Banks, FedEx, UPS Timmers (1998),
provider (layer player) the value chain such Gassmann et al.
as logistics or (2014)
payments—but for
several companies
Value-added reseller Sell a comprehensive Ingram Entertainment, Linder and Cantrell
range of Pitman Company, (2000)
undifferentiated Berkshire Computer
products based on
value-added services,
e.g., through
consultative selling,
product availability,
service, and
promotional pricing
Vertical portals Create a portal that Expedia, TripAdvisor, Applegate (2001),
(affinity portals, specializes in a RateBeer Clemons (2009)
validation through particular area and
community content) provides very deep
content and
functionality in this
area
Appendix 3: Development of the Business Model Pattern

Taxonomy
Interation
Source Pattern Dimensions

D1: D2: D3: D4: D5: D6: D7: D8: D9: D10: D11: D12:
Hier. Degree Product type Strategy for Target Value delivery Sourcing Third parties Value creation Revenue model Pricing strategy Direct profit
im- of digiti- differentiation customers process involved process effect
pact zation
No impact on third parties involved

Customer relationship management
Specific new customer segment
No impact on delivery process

No impact on target customers
No impact on creation process
No impact on pricing strategy

No impact on revenue model
No impact on differentiation
Lock-in existing customers

Product type not specified
Other companies (B2B)
No direct profit impact

No impact on sourcing
Not necessarily digital
Brand and marketing

Intellectual property
Access/convenience
Prototypical pattern
Digitally enabled
Increase revenue
Non-transparent
Solution pattern
Network effects
Multiple effects
Multiple parties
Customization
Multiple steps
Sales channel
Purely digital
Combination
Intermediate
Competitors
Reduce cost
Sales model
Advertising
Innovation
Production
Customers
Suppliers
Financial
Dynamic
Premium
Physical
Quality
Human
Hybrid
Supply
Cheap
Make
Price
Lend
Buy
Sell
Solution provider X X X X X X X X X X X X
1
Razors/blades X X X X X X X X X X X X
Disintermediation X X X X X X X X X X X X
From push-to-pull X X X X X X X X X X X X
Weill et al. [Physical] manufacturer X X X X X X X X X X X X
2
(2005) Contractor X X X X X X X X X X X X
Entrepreneur X X X X X X X X X X X X
Financial broker X X X X X X X X X X X X
Financial landlord X X X X X X X X X X X X
Financial trader X X X X X X X X X X X X
HR broker X X X X X X X X X X X X
Infomediary X X X X X X X X X X X X
Inventor X X X X X X X X X X X X
IP trader X X X X X X X X X X X X
Licensing X X X X X X X X X X X X
Physical broker X X X X X X X X X X X X
Physical landlord X X X X X X X X X X X X
[Physical] wholesaler X X X X X X X X X X X X
Andrew et al. Integrator X X X X X X X X X X X X
(2006) Orchestrator X X X X X X X X X X X X
Chatterjee Brokerage X X X X X X X X X X X X
(2013) Efficiency-based X X X X X X X X X X X X
Network value X X X X X X X X X X X X
Perceived value-based X X X X X X X X X X X X
Osterwalder Free X X X X X X X X X X X X
3
and Pigneur Multi-sided platforms X X X X X X X X X X X X

(2010) Open business models X X X X X X X X X X X X
The long tail X X X X X X X X X X X X
Unbundling X X X X X X X X X X X X
Linder and Aggregation X X X X X X X X X X X X
Cantrell Agora X X X X X X X X X X X X
(2000) Breakthrough markets X X X X X X X X X X X X
Buying club X X X X X X X X X X X X
Channel maximization X X X X X X X X X X X X
Cool brands X X X X X X X X X X X X
De facto standard X X X X X X X X X X X X
Exclusive market-making X X X X X X X X X X X X
Experience destination X X X X X X X X X X X X
Experience selling X X X X X X X X X X X X
Incomparable products X X X X X X X X X X X X
Low-touch approach X X X X X X X X X X X X
Mass customization X X X X X X X X X X X X
One-stop convenient shopping X X X X X X X X X X X X
One-stop low-price shopping X X X X X X X X X X X X
Quality selling X X X X X X X X X X X X
Reliable commodity operations X X X X X X X X X X X X
Service-wrapped commodity X X X X X X X X X X X X
Supermarket X X X X X X X X X X X X
Transaction service and exchange
X X X X X X X X X X X X
intermediation
Trusted product leadership X X X X X X X X X X X X
Under the umbrella pricing X X X X X X X X X X X X
Value-added reseller X X X X X X X X X X X X
Johnson Auction X X X X X X X X X X X X
(2009) Bricks + clicks X X X X X X X X X X X X
Bundle elements together X X X X X X X X X X X X
Dial down features X X X X X X X X X X X X
Do more to address the job X X X X X X X X X X X X
Freemium X X X X X X X X X X X X
Leverage new influencers X X X X X X X X X X X X
Negative operating cycle X X X X X X X X X X X X
Own the undesirable X X X X X X X X X X X X
Rent instead of buy X X X X X X X X X X X X
Reverse razors/blades X X X X X X X X X X X X
Servitization of products X X X X X X X X X X X X
Subscription X X X X X X X X X X X X
Virtual community X X X X X X X X X X X X
Johnson Affinity clubs X X X X X X X X X X X X
(2010) Fractional ownership X X X X X X X X X X X X
Crowdsourcing X X X X X X X X X X X X
Pay per use X X X X X X X X X X X X
Reverse auction X X X X X X X X X X X X
Tuff and Advertising model X X X X X X X X X X X X
Wunker Cost leadership X X X X X X X X X X X X
(2010) Disaggregated pricing X X X X X X X X X X X X
Flexible pricing X X X X X X X X X X X X
Forced scarcity X X X X X X X X X X X X
Membership X X X X X X X X X X X X
Micro transactions X X X X X X X X X X X X
Pay what you want X X X X X X X X X X X X
Premium X X X X X X X X X X X X
Risk sharing X X X X X X X X X X X X
Scaled transactions X X X X X X X X X X X X
Interation
Source Pattern Dimensions
D1: D2: D3: D4: D5: D6: D7: D8: D9: D10: D11: D12:
pact zation




Brand and marketing

Access/convenience
Digitally enabled
Increase revenue
Non-transparent
Solution pattern
Network effects
Multiple effects
Multiple parties
Customization
Multiple steps
Sales channel
Purely digital
Combination
Intermediate
Competitors
Reduce cost
Sales model
Advertising
Innovation
Production
Customers
Suppliers
Financial
Dynamic
Premium
Physical
Quality
Human
Hybrid
Supply
Cheap
Make
Price
Lend
Buy
Sell
Gassmann et Add-on X X X X X X X X X X X X
al. (2014) Affiliation X X X X X X X X X X X X
Aikido X X X X X X X X X X X X
Barter X X X X X X X X X X X X
Cross selling X X X X X X X X X X X X
Crowdfunding X X X X X X X X X X X X
Customer loyalty X X X X X X X X X X X X
Digitization X X X X X X X X X X X X
E-shop X X X X X X X X X X X X
Flat-rate X X X X X X X X X X X X
Franchising X X X X X X X X X X X X
Ingredient branding X X X X X X X X X X X X
Leverage customer data X X X X X X X X X X X X
Lock-in X X X X X X X X X X X X
Make more of it X X X X X X X X X X X X
Open source X X X X X X X X X X X X
Peer-to-peer X X X X X X X X X X X X
Performance-based contracting X X X X X X X X X X X X
Revenue sharing X X X X X X X X X X X X
Reverse engineering X X X X X X X X X X X X
Reverse innovation X X X X X X X X X X X X
Robin Hood X X X X X X X X X X X X
Self-service X X X X X X X X X X X X
Shop-in-shop X X X X X X X X X X X X
Target the poor X X X X X X X X X X X X
Trash-to-cash X X X X X X X X X X X X
Ultimate luxury X X X X X X X X X X X X
User designed X X X X X X X X X X X X
Value chain service provider X X X X X X X X X X X X
White label X X X X X X X X X X X X
Timmers Collaboration platforms X X X X X X X X X X X X
4
(1998) E-mall X X X X X X X X X X X X
E-procurement X X X X X X X X X X X X
Online brokers X X X X X X X X X X X X
Value chain integrator X X X X X X X X X X X X
Hanson Agent models X X X X X X X X X X X X
(2000) Banner advertising X X X X X X X X X X X X
Cost reduction [through the X X X X X X X X X X X X
Dealer support [through the X X X X X X X X X X X X
Information collection X X X X X X X X X X X X
Product sales X X X X X X X X X X X X
Supplier support [through the
internet]
Strauss and Business intelligence X X X X X X X X X X X X
Frost (2014) Content provider X X X X X X X X X X X X
[through digital technologies]
Database marketing X X X X X X X X X X X X
E-mail X X X X X X X X X X X X
Enterprise resource planning X X X X X X X X X X X X
Horizontal portals X X X X X X X X X X X X
Knowledge management [through
use of digital technologies]
Online advertising and public
relations
Online sales promotions X X X X X X X X X X X X
Supply chain management X X X X X X X X X X X X
Tapscott et al. Distributive network
(2000)
Weill and Shared infrastructure X X X X X X X X X X X X
Vitale (2001) Whole-of enterprise X X X X X X X X X X X X
Applegate [Digital] infrastructure retailers X X X X X X X X X X X X
(2001) [Digital] service provider X X X X X X X X X X X X
[IT] equipment/component
manufacturers
Advisors X X X X X X X X X X X X
Application service
providers
Connection X X X X X X X X X X X X
Custom suppliers X X X X X X X X X X X X
Custom suppliers of hardware X X X X X X X X X X X X
Custom suppliers of software X X X X X X X X X X X X
Educators X X X X X X X X X X X X
E-retailer X X X X X X X X X X X X
Infrastructure services firms X X X X X X X X X X X X
Software firms X X X X X X X X X X X X
Vertical portals X X X X X X X X X X X X
Bienstock et Haggle X X X X X X X X X X X X
al. (2002) Merchant model X X X X X X X X X X X X
Networked utility providers X X X X X X X X X X X X
Interation Source Pattern Dimensions

D1: D2: D3: D4: D5: D6: D7: D8: D9: D10: D11: D12:
pact zation




Brand and marketing

Access/convenience
Digitally enabled
Increase revenue
Non-transparent
Solution pattern
Network effects
Multiple parties
Multiple effects
Customization
Multiple steps
Sales channel
Purely digital
Combination
Intermediate
Competitors
Reduce cost
Sales model
Advertising
Innovation
Production
Customers
Suppliers
Financial
Dynamic
Premium
Physical
Quality
Human
Hybrid
Supply
Cheap
Make
Price
Lend
Buy
Sell
Rappa (2001) Audience measurement services X X X X X X X X X X X X
Brand integrated content X X X X X X X X X X X X
Buy/sell fulfillment X X X X X X X X X X X X
Classifieds X X X X X X X X X X X X
Content-targeted advertising X X X X X X X X X X X X
Demand collection system X X X X X X X X X X X X
Marketplace exchange X X X X X X X X X X X X
Open content X X X X X X X X X X X X
Query-based paid placement X X X X X X X X X X X X
Search agent X X X X X X X X X X X X
Trust intermediary X X X X X X X X X X X X
Trust services X X X X X X X X X X X X
Clemons Selling experience X X X X X X X X X X X X
5
(2009) Selling online services X X X X X X X X X X X X

Selling virtual accessories X X X X X X X X X X X X
Social search X X X X X X X X X X X X
Contextual mobile advertising X X X X X X X X X X X X
Misdirection X X X X X X X X X X X X
Fleisch et al. Digitally charged products X X X X X X X X X X X X
(2014) Physical freemium X X X X X X X X X X X X
Digital add-on X X X X X X X X X X X X
Digital lock-in X X X X X X X X X X X X
Object self service X X X X X X X X X X X X
Product as point of sales X X X X X X X X X X X X
Remote usage and condition
monitoring
Sensor as a service X X X X X X X X X X X X
Wirtz et al. Context
(2010)
Iteration 1 4 2 2 3 3 3 3 3 2 3 2
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A Business Model Perspective
on Innovation Susceptibility
Business Model Innovation Levers as a Tool for
Systematic Ideation
Kirstin E. Bosbach, Jan F. Tesch and Uwe C. M. Kirschner
Keywords Business models · Business model innovation

Business model tooling · Innovation susceptibility · Innovation potential
Innovation levers
1 Introduction
Developing a radical idea or technology is not necessarily accompanied by economic

success. Attaining competitive advantage through commercializing new ideas and
technologies requires the design of a viable business model (Chesbrough 2007). In
times of discontinuities of the viability of established business logics and disruptions
of whole industries (Amshoff et al. 2015), firms need to innovate or realign their
business models at a faster rate and in a more profound way (Doz and Kosonen
2010). Such a continuous process of reinvention is a crucial prerequisite for securing
a firm’s competitiveness in times of changing markets (De Reuver et al. 2013).
Companies nowadays are faced with a wealth of business opportunities arising from
Previously published in proceedings of the 2017 ISPIM Innovation Forum. Toronto, Canada, 2017.
K. E. Bosbach
Technical University of Berlin, Berlin, Germany
e-mail: k.bosbach@campus.tu-berlin.de
J. F. Tesch (B)
U. C. M. Kirschner
Robert Bosch GmbH, Stuttgart, Germany
e-mail: uwe.kirschner@de.bosch.com

146 K. E. Bosbach et al.
potentially disruptive technological advancements. These disruptive developments

cause shifts in present market conditions and changes of value-creation networks.
New market segments with different business logics emerge and require new business
models. Anticipating changes in business logics is a challenge for companies. For
securing future success, companies need to recognize, understand, and also act upon
the business potential of such changes (Amshoff et al. 2015; Christensen 2013).
In the past, incumbent firms within several industries experienced difficulties in
assessing possible impacts arising from the shifts in business logics in nascent mar-
kets (Amshoff et al. 2015). A myriad of companies failed to redesign their value
proposition and business model to meet customer’s new demand (Markides 2006).
Dominant industry leaders such as Kodak failed to implement a business model
congenial to the current business logic (Amshoff et al. 2015; Lucas and Goh 2009).
Significant loss in market share was the consequence for Kodak’s inability to commer-
cialize the disruptive technology of digital photography. The original value propo-
sition of Kodak’s business model became inferior in comparison to the ones offered
by new market players. Possible explanations for this failure may be found when
taking a closer look on incumbent’s management decisions prior to the disruption.
The invention of digital imaging sensors emerged as a technological advancement
in photography. However, the underlying technology was under development in the
research-and-development department of Kodak early on. A new business model
around digital imaging would have been a new way forward to pursue an innovative
and formerly unknown market (Lucas and Goh 2009), often referred to as a “blue
ocean” (Kim and Mauborgne 2004). However, Kodak’s management was not able to
adequately interpret possible impacts of these technological advancements. Thereby,
this promising idea was discarded, mainly due to its inherent potential to cannibalize
current profit streams of analogue photographic film. Kodak forfeited the opportu-
nity to exploit the potential arising from the new technology. New market entrants
understood the impact of digital imaging. An ecosystem of complementary products
(flash-memory-cards), services (picture management and software-based editing),
and business processes (printing) was developed (Lucas and Goh 2009).
Within scientific research, the case of Kodak has already been widely discussed
(Lucas and Goh 2009). Amongst others, researchers discussed managerial aspects of
companies struggling in situations when changes in their ecosystem arise. In general,
next to technological advancements, also changes in political, economic, societal,
environmental, or legal circumstances (PESTEL) may be drivers for shifting mar-
ket conditions. The inherent innovation potential of such shifts equally confronts
companies with threats to their core business but also implies worthwhile oppor-
tunities for new businesses (Amshoff et al. 2015). Incumbents are likely to fail to
recognize this business potential and, consequently, no corresponding innovation
processes are initiated. However, in “order to translate business opportunities into
business success, viable business models are required” (Amshoff et al. 2015, p. 19).
To capitalize the emergence of new circumstances in the ecosystem, such as tech-
nological advancements, it is crucial to replace inferior or innovate new business
models at the right time (Chesbrough 2010). Klenner et al. (2013) coined the term
disruptive susceptibility of value networks within an industry. In this context, the
A Business Model Perspective on Innovation Susceptibility 147
authors explore the readiness of a market for potential innovations. Thus, disruptive
susceptibility is used as a means of an early warning system for incumbents (Klenner
et al. 2013). The management is challenged to exploit arising business opportunities
by developing a strategy that best addresses changing regulations, markets, and cus-
tomer dynamics. The emergence of these drivers for change needs to be considered
in business model innovation processes. Therefore, the terminology of innovation
susceptibility is introduced as it analogously describes the readiness of a market for
potential innovation within the business model innovation context.
Aim of this research project is to contribute to the field of managerial tools and
methodologies in the business model context. This happens by proposing a practical
approach that allows for the interpretation of innovation susceptibility of the market in
respective industries and the identification of innovation potential as business oppor-
tunities. In order to outline anticipated contributions to academia, the subsequent
section provides an overview of the literature of business models, business model
innovation, and business model tooling. Further, the role and objectives of tools in
business model innovation processes are briefly discussed before the research design
applied is outlined. Subsequently, the method of the business model innovation levers
is described and illustrated on the basis of a simplified and fictive case study. The
paper closes with drawing a conclusion.
The fundamental idea of this research lies in linking the field of tools with the fields
of business models and business model innovation. A basic understanding of the
concepts of business models and business model innovation is developed before
setting them into the context of business model tooling.
2.1 Business Models
The research field of business models has gained increasing attention in the aca-
demic debate and in practice over the last years (Gassmann et al. 2013; Wirtz et al.
2016). Within business model literature, the phenomenon is often referred to as an
abstract concept describing the way value is created for a customer by the firm and
how it is monetized (Gassmann et al. 2014). Among business model researchers it is
widely acknowledged that a superior business model enables a firm to obtain com-
petitive advantages over its competitors (e.g., Gassmann et al. 2016; Baden-Fuller
and Morgan 2010) and to create additional value for both customers and partners
(Frankenberger et al. 2013). Most researchers tend to see a business model as a static
phenomenon (e.g., Amit and Zott 2001; Chesbrough and Rosenbloom 2002). Other
researchers see a business model as a “dynamic construct”, in a state of continuous
change (Frankenberger et al. 2013; Demil and Lecocq 2010). Casadesus-Masanell
and Ricart (2010) see a business model as a result of managerial strategic choices.
The understanding underlying this paper is anchored in the strategic choices per-
spective. Researchers widely emphasize that a business model’s perspective on the
aspect of disruption, as the exploitation of prior market inefficiencies as innovation
opportunities, is yet in need to be further investigated (Markides 2006).
Similar to the business model concept, various definitions of business model innova-
tion exist and yet no universal understanding of the term in the scientific community
has been established (Gassmann et al. 2014; Frankenberger et al. 2013; Mitchell and
Bruckner Coles 2004). However, most researchers refer to business model innova-
tion as a term describing the transformational nature of business models as being
both the development of an existent business model and the innovation of a new one
(Bucherer and Uckelmann 2011; Amit and Zott 2012). Within research on business
models, it is commonly agreed that a perspective on the transformational aspect of
incremental, radical, or disruptive business model innovation is a promising field
for further research (Schneider and Spieth 2013; Markides 2006). In particular, the
development of tools and methodologies bears tremendous potential to contribute
both to the emerging stream of literature as well as to managerial practice (Veit et al.
2014; Bouwman et al. 2012).
Process phases of innovation are categorized, named, and described differently in
literature (e.g., Tidd and Bessant 2005; Hansen and Birkinshaw 2007). Frankenberger
et al. (2013) develop a framework for the business model innovation process, “The
integrative 4I-framework” (Fig. 1), on the basis of existent innovation management
literature and structure the process into four generic innovation process phases: initi-
ation, ideation, integration, and implementation. Going by the 4I-framwork, the first
phase initiation “[…] can be described by activities which focus on the understanding
and monitoring of the surrounding ecosystem of the innovating firm” (Frankenberger
et al. 2013, p. 260). The two main challenges evolving in this phase of the innova-
tion process are: first, to understand the needs of the stakeholders in the ecosystem
and, second, to identify drivers for change. Stakeholder of a firm’s ecosystem can
be customers, suppliers, competitors, governments, or other important influences on
the focal firm’s activities. In this context, changes in stakeholder needs and the emer-
gence of drivers for change from the firm’s environment are frequently associated
as triggering factors for business model innovation or re-design processes (Franken-
berger et al. 2013). The second phase ideation “[…] focuses on the generation of
ideas for potential new business models. […] it is concerned with the transformation
of opportunities, which are identified in the initiation phase, into concrete ideas for
new business models.” (Frankenberger et al. 2013, p. 261). Integration marks the
third phase of the 4I-framework as “[…] activities within this phase focus on the
development of a new business model based on promising ideas identified in the
ideation phase. They need to be transformed into a complete and viable business
Fig. 1 Phases of the business model innovation process. Adapted from Frankenberger et al. (2013)
model” (Frankenberger et al. 2013, p. 262). This newly developed business model
needs to be implemented within the firm’s business logic occurring in the fourth
phase of the innovation process, named implementation (Frankenberger et al. 2013).
For the further course of action of this paper, the focus of analysis lies upon the
support of activities of the first two phases, initiation and ideation. More generally
speaking, it lies upon a very early phase of the business model innovation process.
2.3 Business Model Tooling
Within innovation management and especially when regarding business models, the
aspect of tools is as yet underexplored (Bouwman et al. 2012). However, it holds
essential opportunities for scientific contributions (Veit et al. 2014). Attempts to
develop a tool similar to the endeavour of this paper has already been made by e.g.,
Cohen and Winn (2007), who discuss the presumption of market inefficiencies as
underlying conditions for innovation opportunities. Klenner et al. (2013) develop a
framework to explore the phenomenon of disruptive susceptibility of value networks.
The authors outline a set of propositions, which serve as indicators to scan the
incumbent’s environment in order to filter and interpret the information adequately
(Klenner et al. 2013). Nonetheless, their publication does not give any advice on
how and what concrete component of the current business model design should be
subject to change. There is little knowledge about relevant success factors or on ex
ante evaluation of the overall viability of a projected business model (Frankenberger
et al. 2013). Learning from these publications, there is a distinct need for a deeper
understanding of the systematic process of business model innovation in an early

stage.
One category of acknowledged tools for the systematic development of new busi-
ness models are business model patterns (e.g., Remane et al. 2017; Gassmann et al.
2014; Abdelkafi et al. 2013; Osterwalder et al. 2010). As means of drawing analogies
from successful business model innovations, business model patterns are a proven
tool for management (Remane et al, 2017; Gassmann et al. 2014). Abdelkafi et al.
(2013) linked the use of business model patterns with the emergence of a new technol-
ogy, as they extensively discuss their findings with the example of electric mobility. It
is shown how concrete business model schemes can be derived and evaluated, which
may serve as a strategy proposition for management. Subsequently, Amshoff et al.
(2015) extended the idea of recurring patterns as a tool to elaborate business models
for disruptive technologies. They conclude that “[…] business model patterns are
a valuable approach to describe and understand business logics of new, unknown
markets. […] New business models for disruptive technologies are often based upon
an unconventional recombination of proven solution elements” (Amshoff et al. 2015,
p. 19). Business model patterns represent and refer to best-practices of companies in
a similar situation in the past and do not guide management ex ante in the elabora-
tion of a strategy for their concrete situation. In this paper, business model patterns
are considered as a means of operationalization, a “vehicle” to leverage innovation
potential in markets and industries. The tool, in contrast to patterns, hence ought to
reveal strategic options for the firm’s situation. The objectives for the creation of a
systematic tool were derived based upon the review of the current state of knowledge
of the three research streams and their stated needs.
3 Research Design
The research project was carried out in cooperation with a pilot case company from
the technology sector. It can be characterized as a conglomerate, being a relevant
market player in several industries such as automotive, energy and building technol-
ogy, security technology, industrial technology, and consumer goods. The research
team worked together with experts from different functions such as product man-
agement, product development, corporate strategy, and IT. This allowed us to access
real-world innovation cases in several industries and markets and to have a unique
test bed for iterative development, testing, redesign, and validation of the tool. The
research project was conducted in a period between fall 2015 and fall 2016. To elab-
orate the prescribed tool in terms of the aforementioned business model perspective
on innovation susceptibility, a tripartite mixed method approach is employed. The
authors seek to design a simplified model based upon a set of levers for strategic busi-
ness model innovation. In this sense, the term “business model innovation levers” is
coined.
Against the background of continual adjustment, the tool is developed following
three phases: data collection, data analysis, and tool creation and validation (Fig. 2).
Fig. 2 General methodological approach
3.1 Data Collection
In the first phase of data collection, the authors identified successful disruptions and
failed disruption attempts based on scientific literature. Second, valuable insights
were gathered within industrial projects of the partner company. To collect relevant
data for this research projects, several project teams in the focal organization of the
partner company were involved. They were allocated with the task of identifying
potential weak points and attractive business opportunities for a corporate organisa-
tion. As a next step, this information was used to compile a case study pool consist-
ing of companies that successfully developed new business models that disrupted or
potentially are in the wake of disrupting other firms. The first sample encompasses
27 cases of companies from 17 different industries in the B2B and B2C market. The
case companies were founded between 1886 and 2014 and are either market leaders
or innovative entrepreneurial firms.
A similar logic of data collection was applied to the second sample to build a
reliable database. The 185 unicorn companies of the CB Insights 20161 list, thereby,
provided a first basis. A unicorn company has a post-money valuation of at least one
billion dollars. The publicly accessible list was screened for companies that success-
fully operate in the market up to this day and where success is driven primarily by
innovation of the business model. Companies were excluded from the analysis when
the company success is driven primarily by technological innovation (e.g. artificial
intelligence and virtual reality companies), primarily build on local adaption by tak-
ing proven business models in industrialized markets and copying them in emerging
markets, or built solely on a product innovation. Duplicate business models were also
1 CB Insights, 2016: https://www.cbinsights.com/research-unicorn-companies.

not considered. Altogether a database of cases was assembled, in which radical or

disruptive business model innovation led to a significant market (industry) change.
To assemble a valid data basis for each case, the primary and secondary sources of
information were collected, such as online content on corporate websites, annual
reports, newspaper articles, articles in practitioner’s outlets, management books, sci-
entific case-studies, and publications that investigated on the business model patterns
dealing with the cases of the sample.
3.2 Data Analysis
In the second phase of creating the tool, a qualitative content analysis was applied.
Companies meeting the above listed selection criteria were systematically scanned
for their innovative element. In this sense, an innovative element describes a fac-
tor that has a fundamental and sustainable impact on markets and value chains.
This means that the analysis was used to systematically explore what factors of the
case companies’ business model have such substantial effect on value chains and
surrounding markets. Furthermore, additional information, such as enabling factors,
prerequisites, conditions and recent changes in PESTE-ecosystem factors of the cases
were gathered.
As an example, the business models of well-known companies such as Airbnb or
Netflix were analysed, because both companies challenged existing systems. Disrup-
tive business models have the potential to change the market and its dominant logic
in a substantial way. With the emergence of the sharing economy, for instance, the
hotel industry had to experience this phenomenon as Airbnb launched its market-
place for convenient renting and booking of private lodging worldwide. Successful
and high-profit business models can easily become obsolete as it happened, for exam-
ple, in the case of Netflix. This company revolutionized the movie rental industry
and, consequently, disrupted the company Blockbuster. While Blockbuster’s domi-
nant business model logic only experienced incremental changes, Netflix radically
changed the market in this industry by modifying its business model. The analy-
sis thereby focuses on conditional factors that make such innovative companies, and
their respective business models, so unique and fundamentally different to prevailing
business models in the respective industries. It includes the systematic monitoring
and analysis how other companies have changed or built a value proposition, value
delivery, value creation or value capture that is more successful in meeting current
customer needs.
As a starting point for the tool creation in the following subsection, the cases
were clustered and structured by the deducted features of their innovative element
and prerequisites for their application. The resulting categories were named business
model innovation levers.
3.3 Tool Creation and Validation
In the third phase, the authors aim to create and validate the tool. As a methodology
to build the tool as an artefact, this paper followed the approach outlined by Peffers
et al. (2007). Table 1 lays out the methodology in greater detail. In essence, the
initial set of business model innovation levers is outlined in a study set, comprising
an abstracted presentation and a document set, addressing practitioners of various
fields (corporate strategy, product management, research and development) of the
pilot case company. The study set is then used as a tool by practitioners.
Action Design Research (ADR) is considered for activities 3, 4, and 5, as the devel-
opment of the artefact requires an iterative approach (Fig. 3). Starting with the initial
set as outlined above, an alpha version of the study set is created. The alpha version is
then applied in the working team (practitioners, in-house business model innovation
consultants) of the pilot case company, and its outcomes are assessed by end-users
and industry experts (business unit executives). Thereby, the tool is applied within
several industrial project workshops and adapted according to insights on its use,
applicability to the practitioner’s problem sets, and outcomes. The researchers con-
stantly observe the situation and protocol the findings. Based on the overall feedback
and observations, activities 3–6 are reiterated for the next versions (beta, gamma)
until the process reaches a saturation point.
Fig. 3 Action design research to design, development, and valuation of the artifact. Adapted from
Sein et al. (2011)
Table 1 Overview on activities following a design science research approach

Activity Description Results
Problem identification and Literature review and Research gap and practical
motivation case-study research on importance identified (see
business model innovation introduction)
(BMI) and tooling
Expert interviews and
workshops with practitioners
and end-users from the pilot
case company on previous
BMI and application of tools
within this process
Definition of objectives Learnings from practice of Objectives defined based on
pilot case company on the research setting
applicability of strategic tools
(e.g. Porter’s 5 forces,
SWOT-analysis): (a) Easy to
understand and to apply by
practitioners (b) Identifies
inherent innovation potential
by means of a ‘checklist’ (c)
Leading to clear advices how
to operationalize through a
business model pattern (d) The
structuring of the BMI levers
is unambiguous, independent,
and mutually exclusive
Design and development Consideration of features of Artefact completed after
existing tools in BMI and several iterations for
strategic management dealing improvements
with corporate foresight in
similar contexts
Iterative ADR approach:
application of the artefact in
real-world BMI projects;
learning and revising
prototypes (alpha, beta, …)
until reaching sufficient
saturation in meeting the
objectives
Demonstration Attending workshops with Artefact applied in several
interdisciplinary working innovation projects
teams of the pilot case
company with the task of
elaborating business models
for several business units (e.g.,
thermal technology)
Presenting the outcomes of the
artefact to decision makers and
senior management
(continued)
Table 1 (continued)
Artefact validation Critical reviews of the Artefact is acknowledged as a
outcomes with end-users and viable tool
feedback from practitioners to
revise prototypes
Application of the artefact to
the case studies to reveal
whether use of the artefact
would have let to better
decisions in past BMI
processes within workshops
Communication Conferences and scientific Internal publication serving as
journal contributions (planned) a guideline for the use of the
Contributions to practitioners’ artefact by practitioners
outlet
Ph.D. students’ consortia
Presentation of the artefact on
a BMI summit for researchers
and BMI experts
Source Based on Peffers et al. (2007)
4 The Business Model Innovation Levers
This paper introduces a systematic approach for the early phase in business model
innovation processes. Therefore, the terminology of the business model innovation
levers is introduced. In this sense, a lever is defined as an innovative element of a busi-
ness model which impacts markets or value chains in a fundamental and sustainable
way. The innovation levers are based upon the following criteria: levers among one
another need to be unambiguous, independent, and mutually exclusive. The innova-
tion levers with their respective continua and considerations for their application are
shown in Table 2. Each lever (e.g. “usage based pricing”) has a continuum assigned
that is constituted of two opposite amplitudes (“flat rate” vs. “pay per use”) that can
help to challenge the current value chain. The tool is characterized by its simplicity
and reusability.
The tool of the business model innovation levers can be applied for different
purposes: first, it shall contribute to an advanced systematisation of the aspect of
ideation in an early stage of the business model innovation process. Hence, this paper
aims to develop a set of mutually distinct levers that practitioners may consider when
analysing the value configuration of their business model. The ten innovation levers
function as a clear checklist to review the value chain for business opportunities in
relation to the current business model. This means that practitioners can more easily
recognize which changes to the value chain could bear potential for future business
opportunities. This reflects the application of the tool from an internal strategic
perspective.
Table 2 Detailed overview of the innovation levers

Innovation Continuum Description Considerations
lever for application
Availability Forced scarcity High Level of availability for Price elasticity;
availability offered products/services maximum
Forced scarcity: the exploitation of
availability of products price
for the customer is sensitivity;
restricted in regards of willingness to
amount, time, and pay is higher
accessibility than effects
High availability: the through
availability of products scarcity of
for the customer is not units sold
limited in regards of
amount, time, and
accessibility
Degree of Free Fully priced Ratio of costs charged to Maximizing
freeness the consumer for the revenue;
offered product/service growing a(n)
For free: usage of (organic)
product/service is free; community on
revenue generated by platforms;
indirect stream different
(commercials, data willingness to
collection, etc.) pay
Fully priced: revenue
generated by payments
of the consumer for the
product/service
Intermediation Less More Efficient allocation of Less: profit
jobs along the value margin
chain to one or more maximization,
intermediaries cost effective
Less: reducing the distribution of
amount of intermediaries tasks
in the value chain (direct More: market
selling) place, market
More: increasing the access, and
amount of intermediaries cost reduction
in the value chain (e.g.
distribution, finance,
return of goods, etc.)
(continued)
Table 2 (continued)
Level of individ- Standardisation Customisation Alignment to the needs Highly
ualization of specific customers standardized
Standardization: only products and
one or a few version(s) services; cost
of the product/service is efficient
made available for all bundling;
customers degree of
Customization: the customer’s
product or service are desire for indi-
completely aligned to vidualization;
specific customer needs price elasticity
Offering scope Specialization Wide offering Product catalogue range Relation
Specialization: focus on between
the provision of one additional
product or service (less) revenue
Wide offering: offering a and additional
wide variety of different (less) costs;
products and services focus and
specialization
on core
competencies
Platform Shop Market-place Direct sales process Leveraging
versus sales through a data through
third-party connection active data
Shop: direct sales to exchange
customer by supplier between
Marketplace: platform several parties;
hosted by a third party efficient
that brings together pairing of
suppliers and customers suppliers and
for specific needs (active consumers with
involvement by several compatible
parties) service offer
and demand;
becoming the
“centre” for a
topic in
customer
perception
(e.g., mobility,
lodging, and
repairs)
(continued)
Table 2 (continued)
Price flexibility Fixed prices Dynamic Level of price Price elasticity;
pricing adjustments based on additional
market conditions revenue
Fixed prices: the price of through
the product does not dynamic
change pricing based
Dynamic pricing: price on data
dependent on conditions analysis;
such as time, demand, or exploitation of
customer lifestyle customer
behavior
(convenience)
Shifts in value Down-stream Up-stream Level of shifting tasks in Efficient cost
chain value chain (outsourcing planning; focus
or including) on core
Downstream: passing on competencies;
tasks to downstream optimized
value chain (e.g. IKEA value chain;
“do-it- making use of
yourself”)/integrating economies of
tasks from downstream scale
value chain (e.g.
Outfittery)
Upstream: passing on
tasks to upstream value
chain/integrating tasks
from upstream value
chain (e.g. Rolls Royce,
“Power-by-the-hour”)
Usage based Flat rate Pay per use Payment type for Fluctuating
pricing accessing services demand;
Flat rate: fixed recurrent customers are
payments independent of most of the
real usage time not aware
Pay per use: single of their needs;
payment for each usage exploiting
customer
irrationalities;
convenience
versus cost
control
(continued)
Table 2 (continued)
Value from data No data Data Degree to which value is Further
processing processing captured from data developing and
collection and further improving
processed. Generating product/service
consumer data is an offering and
essential process of business
value creation model; added
No data processing: the value through
guarantee for the forecasting
consumer that his data customer
will not be further behavior;
processed generating
Data processing: additional
significant additional revenue
value is created though streams;
generating and further efficient use of
processing consumer customer data
data analysis (e.g.,
for sales to
third parties,
efficiency
enhancement,
recognizing
potential for
savings, and
hypothesis
testing)
Second, the application of the tool is seen from an external strategic perspective.
Incumbent’s strategic management needs to identify relevant changes in the firm’s
dynamic environment for business opportunities. Such (unused) business opportu-
nities can arise as a consequence of market inefficiencies (imperfect markets). They
need to be evaluated in terms of their potential as windows of opportunities. Over-
coming the prevailing logic of the market (current value configuration) can reduce
market inefficiencies, increase customer value, and extend the addressable scope of
innovation. The levers thereby may support the firm’s management in identifying,
understanding, and acting upon such windows of opportunities. Relevant innovation
potential can, more easily and systematically, be recognized, classified, and ulti-
mately transformed into first idea(s). Based upon these first idea(s), a subsequent
business model innovation process can be initiated. Such an approach might fuel
the early stage of the business model innovation process. It allows for an easier and
better interpretation of innovation susceptibility of the market and the identification
of innovation potential as business opportunities. It acts as a facilitator for sustain-
able competitive success and as a basis for strategic choices regarding the innovation
of the firm’s business model. In this case, innovation potential is seen as potential
business opportunity.
Third, the usage of the tool is again seen from an external strategic perspective.
Present innovation potential does not necessarily need to have a positive impact on the
firm’s business. Similar to tools for corporate strategy, a key ability of the incumbent’s
strategic management division is to monitor and scan the firm’s environment and
ecosystem for change drivers that might cause shifts in prevailing market conditions.
The objective is to identify where the company itself is vulnerable to changes in
relevant markets induced by competitor firms or new market entrants. Identifying
and managing change drivers, for instance in the form of PESTEL advancements in
the firm’s environment or ecosystem, is a key precondition for successful business
model innovation. The tool can help to monitor and to anticipate fundamental changes
in markets and business logics and, if necessary, to draw the adequate conclusions
for strategic decision making.
Fourth, applying the line of thought of “dynamic” customer needs to the field of
business model innovation, it can be argued that it is a major challenge for firms to
continuously address current customer needs with a novel and superior value propo-
sition. In order to set an impetus for a positive buying decision, the value proposition
has to meet customer expectation and ideally even meet latent and undiscovered needs
(Kano 1984). In times of rapidly changing environments, it is becoming harder not
only to meet customer needs, but also to exceed them. Kano (1984) call these latent
customer needs, which have not been articulated yet, “attractive quality elements”.
Those provoke excitement which leads to a superior fulfilment of customer desires.
The innovation levers are a means to recognize possible “attractive quality elements”
for the continuous improvement of the firm’s value proposition.
A number of possible scenarios for dealing with innovation potential in the mar-
ket from a strategic perspective is illustrated in Fig. 4. The scenarios show what
could possibly happen with and without the application of the tool, placing it in the
overall picture of strategic choices. A company can, whether consciously or uncon-
sciously, decide to disregard the innovation potential (1A) (e.g., considered as not
significant enough). But a company can also decide to actively detect the inherent
innovation potential by applying the business model innovation levers as supporting
methodical tool (2A). Supposing the firm disregards, the innovation potential, two
specific consequences are possible: the viability of the core business model is not
disrupted and the firm’s assessment of the significance of the innovation potential
was correct (1A-I), or the innovation potential is significant and, therefore, relevant
for the viability of the core business model (1A-II). In this case, the dominant busi-
ness logic changes and the core business model is threatened. Supposing the firm
detects the innovation potential through applying the levers, it can either be of minor
relevance (2A), not threatening the viability of the business model, or it can be of dis-
tinct relevance, threatening the viability of the business model (3B). By applying the
levers (4), the distinct innovation potential (3B) can be recognized, understood, and
exploited as a starting point for developing innovative ideas as business opportunities
for innovation-driven growth.
Fig. 4 Strategic perspective on innovation potential in the market
5 Illustrative Case Study
To further illustrate the approach, a simplified and anonymized case study is pro-
vided. In the following, the use of the business model innovation levers is exemplarily
demonstrated with CleanWash, a division of a multinational appliance manufacturer.
CleanWash develops, produces, and sells washing machines and driers via electron-
ics retailers as major distribution channel. The company now faces increasing com-
petition from competitors and new market entrants. Therefore, the management is
worried about other companies changing the purchasing decisions of consumers and,
therefore, fundamentally changing consumer behavior and the prevailing business
logic. How and to what extent can such a disruptive shift cause a notably (posi-
tive or negative) impact on CleanWash? How can CleanWash develop new ideas
and, consequently, design innovative or even disruptive business models? To equally

encounter these opportunities and threats, CleanWash’s management decided to ini-
tiate a business model innovation workshop by following the structured approach of
the innovation levers. Even though the traditional business model of CleanWash was
successful so far, the firm opted for a proactive strategy in order to react to the increas-
ing market pressure. At first, all relevant stages of the value chain for the relevant
market are displayed in simplified form (presales, production, sales, aftersales, etc.).
By transferring the context of the levers (continua) onto the respective market, sig-
nificant leverage effects on the value chain can be found from which innovative ideas
evolve. However, not all levers necessarily need to fit or contribute to the development
of new and innovative ideas. In the case of CleanWash relevant levers, among others,
are: level of individualization and shifts in value chain. As a consequence, the idea of
CleanWash-Individual emerged as a leasing-based solution for private households.
The company heads for a downstream shift in its value chain by adding the service
tasks of maintenance and return delivery. The solution CleanWash-Individual is a
leasing model for washing machines and driers for private households searching for a
highly customized solution. Thereby a new market is created that follows a different
business logic. By developing a new business model, CleanWash reacted to changes
in the market and in present customer needs. In times of growing mobility of the
population, customers do not want to be bound to a bulky washing device. However,
they want to have their clothes washed and clean. Customers want a solution that is
easy, not pricy, and time-saving. Therefore, an additional service is offered as part
of the value proposition. As soon as the device is broken or no longer needed, for
instance when relocating to a different city, it can be returned to CleanWash and a
new device can be ordered anytime. Customers save time and do not need to make
high upfront investments for these household appliances anymore. They can rent
them on the basis of a monthly-fee and individually set period of time. This logic of
“paying-according-to-demand” is a unique selling proposition that corresponds to
what customers currently want and, consequently, are willing to pay for.
6 Conclusion
To practice, this paper contributes to innovation knowledge by providing a com-

prehensive tool, the business model innovation levers, as supplement to the field
of business model tooling. The levers are to be understood as a complementary
approach for idea generation in an early phase of the business model innovation pro-
cess. Changes in the firm’s dynamic environment (PESTEL advancements), markets,
and customer needs may be drivers for the occurrence of such innovation potential.
In sum, the tool supports companies to detect, understand, and act upon occurring
innovation potential.
To research, the identified levers represent a taxonomy of past successful busi-
ness model innovations, which, as stated by Baden-Fuller and Morgan (2010), holds
essential potential for scientific contribution. Nevertheless, taxonomies cannot be
universally perfect (Nickerson et al. 2013). However, the authors argue that the out-
lined taxonomy structures the innovative elements of past BMI in a suitable manner,
as it highly draws from a common understanding of a large number of practition-
ers that were involved in the research project. Both the business model innovation
levers and the business model patterns reflect recurring archetypes of successfully
implemented business model innovations. Regarding future research, both may be
orchestrated as vehicles to systematic business model innovation. Thereby, an even
more systemized approach can be achieved by applying the patterns as a subse-
quent tool to the levers. Combined, patterns help to transform identified innovation
potential into concrete ideas for a business model design. The patterns thereby may
represent the operationalization of the levers.
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Profit Driving Patterns for Digital
Business Models
Monika Streuer, Jan F. Tesch, Doris Grammer, Marco Lang
and Lutz M. Kolbe
Keywords Business model innovation · Business model pattern · Digitalization

Internet of things (IoT)
1 Introduction
The ability to initiate and lead innovation is said to be a crucial factor for individuals,
organizations and even nations (Vlok 2012). An immense opportunity for a wider
innovation scope is provided by the constantly emerging paradigm of the Internet
of Things (IoT), which is predicted to reach up to 20.8 billion connected devices by
2020 (Gartner 2015). Nevertheless, companies struggle to transform new ideas into
Previously published in proceedings of the 2016 ISPIM Innovation Summit, Kuala Lumpur,
Malaysia, 2016.
M. Streuer
Karlsruhe Institute of Technology, Karlsruhe, Germany
e-mail: monika.streuer@student.kit.edu
J. F. Tesch (B)
D. Grammer
Robert Bosch GmbH, Stuttgart, Germany
M. Lang
Bosch Software Innovations GmbH, Stuttgart, Germany
L. M. Kolbe

166 M. Streuer et al.
viable business. History has shown that less than a third of all ideas make it to be
launched as a new product and by far less to be successful (Barczak et al. 2009).
The OECD defines several components of an innovation of which one is a (suc-
cessful) market launch (OECD 2005). However, for a company to launch a new
service or product it must have a strong business model leading eventually (rather
sooner than later) to sustainable revenues.
Within the field of tools for business model innovation, so-called “business model
patterns” can help to design a strong, financially viable and sustainable business
model for a service or product by drawing analogies from successful cases from the
past (Gassmann et al. 2013).
However, experience shows that while a basic knowledge of business model pat-
terns is widely spread within the community of innovation management profession-
als, most actors are lacking a deep understanding of the prerequisites for their appli-
cation and the specific value the individual patterns can create. Therefore, while past
research focuses strongly on providing a holistic view and a general understanding
of business model patterns enhancing a creative process of reflection and transfer to
new businesses, this paper aims at providing a focused guidance on which patterns to
use in order to drive profit in IoT- businesses and thereby support ideas in becoming
actual innovations.
Hence, the questions researched within this study are:
1. Which patterns are potentially profit driving for digital businesses?
2. Which categories must be considered when choosing profit driving patterns?
3. What are the prerequisites, influencing factors and levers for a successful appli-
cation of each profit driving pattern?
Therefore, firstly, a set of potentially profit driving patterns for the IoT paradigm
is being identified based on existing literature. Secondly, in cooperation with a large
holding from the technology sector with business units in several industries, we
review a total of 97 business model innovation prospects focusing on the poten-
tially profit driving patterns. Based on this pre-study we select representative cases,
which use profit driving patterns, for further assessment. Third, a multiple-case-study
approach is applied on the representative cases identifying categories and within these
factors with influence on the choice of profit driving patterns.
Business models are a concept that describes how an organization intends to create
and capture value from its offering (Chesbrough and Rosenbloom 2002). Different
methods can be used to support the development of a successful business model, of
which one are business model patterns.
Gassmann et al. (2014) state that 90% of all new business models are in fact the
recombination and application of a set of already existing patterns. Hence, several
Profit Driving Patterns for Digital Business Models 167
authors dedicated their work to identifying and capturing the field of business model
patterns and making it accessible for the managerial practice.
Remane et al. (2017) reviewed scientific literature and provide a harmonized list
of a total of 182 patterns identified, which are subsequently structured by a proposed
taxonomy. Gassmann et al. (2013) contributed to the practical appliance with a set of
55 patterns and brief explanations, how these patterns have led companies to major
success in the past. Osterwalder et al. (2010) propose five patterns that they defined
as fundamental and translated them into the language of business model canvas in
order to provide a general understanding and simplify the immediate application.
In summary, the past research focuses strongly on providing general understand-
ing of business model patterns to users, enhancing a creative process of reflection,
recombination and application to new businesses. This paper seeks to contribute to
and extend this knowledge by providing a study researching patterns that are explic-
itly profit driving and offering practical guidance for their application.
3 Research Design
To investigate the stated research questions, we collected data from business model
initiatives from the different business units at the partner company. Within the partner
companies’ boundaries, overall 97 IoT business model innovation initiatives were
identified. However, investigating on all 97 initiatives attempting to code these con-
sidering an overall of 182 patterns from the database of Remane et al. (2017), was too
complex to realize and not feasible, especially in a corporate environment. Hence,
we were required to preselect a set of relevant patterns for digital projects, as well as
narrow down the total of 97 cases to a representative selection, which was assessed
further by conducting interviews.
These constrains led to a three-phase research design as described in Fig. 1.
Phase 1 (preselection of business model patterns): In order secure the scientific
relevance of this study, we started with the holistic set of all 182 patterns proposed
by Remane et al. (2017). Out of this set, we selected 21 patterns, explicitly relevant
for IoT business models based on the following criteria:
a. Timeliness: the pattern lists at least one source later than 2010.
b. Practitioner’s understanding: the pattern lists at least one source that addresses a
practitioner’s audience in order to secure the interviewee’s understanding.
c. Significant importance for digital projects: the research team discussed each
remaining pattern to identify explicitly important patterns for the economic
paradigm of the Internet of Things (IoT).
Next, we applied the taxonomy proposed by Remane et al. (2017), which char-
acterizes each of the patterns in 12 dimensions of which one is direct profit effect,
on the previous selection of 21 IoT business model patterns. Thereby we revealed a
total of nine profit driving business model patterns.
Fig. 1 The research design
Phase 2 (pre-study): Using the 97 IoT business model initiatives we conducted a

pre-study coded by the degree of the initiative’s maturity, a qualitative description of
the business model, and a meta view on all employed IoT patterns. This pre-study
allowed us to narrow down mature initiatives that successfully implemented profit
driving patterns. The results lead to the choice of nine representative cases that are
investigated further concerning categories and within these factors that influence the
choice of profit driving patterns.
Phase 3 (case study): We assessed the nine selected representative cases in terms of
categories and factors influencing the choice of profit driving patterns by conducting
semi-structured interviews with the project managers responsible for the design of
the business model, following a case-study approach (Eisenhardt 1989; Yin 1989).
Exemplarily questions of interviews are shown in Table 1.
Table 1 Leading questions for the interview

Why was this specific set of patterns chosen?
Which prerequisites and criteria were evaluated when choosing the patterns?
Which patterns were considered and then discarded and why?
Were patterns added or discarded during the implementation of the project and why?
During the implementation, did you experience any factors/levers/environment having a
positive or negative influence on the patterns of your business model?
Looking back, would you have chosen different patterns for your project and if yes, why?
Fig. 2 Procedure of data analysis based on Creswell’s data analysis spiral (1998)
The interviews were analysed based on Creswell’s (1998) data analysis spiral
as shown in Fig. 2. The raw data were organized creating a computer database
where all interviews were gathered. The entire set of data was perused several times
and supplemented with comments in order to get an overview over the data and
a first impression of how they can be classified. Next followed the classification,
where based on the statements of the interviewees, categories that influence the
choice of patterns were derived. Furthermore, for each pattern influential factors
and prerequisites were extracted. This led to the synthesis, which is the result of
this study, presenting the general categories to consider when choosing profitable
business model patterns and within these, for each pattern, prerequisites as well as
influential factors for their application.
4 Findings
Phase 1 (preselection of business model patterns): Table 2 shows an overview of the

findings of phase one. The listed 21 patterns are identified as relevant for the paradigm
of the IoT and serve as a coding-guidance for the pre-study. The highlighted (italics)
patterns are identified to drive profit, according to the taxonomy provided by Remane
et al. (2017). The summary of the overall findings can be found in the Appendix.
Phase 2 (pre-study): Within phase two, we conducted a pre-study with 97 IoT
business model initiatives. This pre-study allowed the choice of nine representative
cases based on their maturity level and the profit driving patterns they have used. The
representative cases are all in a late implementation phase and employ at least four
profit driving patterns. The cases were chosen under the restriction to guarantee that
at least three initiatives can be interviewed regarding each pattern.
Table 2 Summary of the identified 21 IoT patterns including the nine profit driving patterns
Profit driving patterns (in italics)
Add-on Fractional ownership Pay per use
Hidden revenue Freemium Performance-based
contracting
Affiliation From push-to-pull Razor/blades + Lock in
Customer loyalty Guaranteed availability Self -service
Digitally-charged products Leverage customer data Sensor as a service
Direct selling Lock-in Solution provider
Flat-rate Multi-sided platforms Subscription
Phase 3 (case study): During the interviews with the project managers of the rep-
resentative cases as well as the by perusing these is has become apparent that the
following three categories are crucial when choosing profit driving patterns:
1. Service/product characteristics
2. Company/project and market characteristics
3. Customer and partner characteristics and relationship.
Within these categories, the practitioners stated several positively influencing
factors, levers and prerequisites for each of the profit driving patterns (the complete
summary of the findings can be found in Appendix 1). Due to page limitation of this
outlet, the findings are summarized for each pattern in the following.
Add-on: This pattern allows to target a wide range of customers reaching from small
to large size. A modular design of the service/product that can be realized by add-
ons enables an individual offering for each customer, depending on the customer’s
willingness to pay. Financially limited projects as well as project meant to be continu-
ously pursued and developed further can offer additional and (internally or externally)
newly developed services as add-ons.
Direct selling: This pattern may be used when direct customer contact is required
due to technical reasons (complexity of product, its installation, etc.) or if customers
demand personal contact and/or an individual offer. Using direct selling is especially
recommended when direct customer contact or sales channels already exist, when
no additional value can be generated by sales through intermediaries and when an
overview of the customers is desired.
Flat-rate: A flat-rate pricing strategy may be used for complex services/products
and offerings that are designed or are by nature laid out for intense use. Thereby,
the customer is given the possibility to explore the service and fully understand its
value. Furthermore, it may be used due to the competitive situation, when competitors
already offer a substitute product as flat-rate.
Freemium: This pattern may be used for services/products that do not target a niche
but for which the number of customers is crucial to their existence and success and
which depend on a fast diffusion of popularity. Additionally, a freemium strategy
lowers the entry barriers for customers. This is necessary when competitive products
already exist/are being used and when the willingness to pay is rather low. Using
freemium in this setting attracts customers and can help to attach them by the free
usage of the service/product.
From push to pull: Using this pattern is effective when the product is not yet developed
or if it was developed with a user cantered approach. The knowledge for the shift from
push to pull, which is a prerequisite for the successful application of this pattern, can
be derived from customer data or gathered by personal contact through consultation
of customers and experiences made during interaction with customers. This pattern
is particularly attractive if competitive product exist that do not focus on the users’
needs.
Guaranteed Availability: This pattern is particularly relevant for online services.
However, it is recommended to only use it if the customer is willing to pay for this
additional offering of guaranteed availability.
Leverage customer data: If service/product is generating or/and collecting customer
data automatically and there is an intention of utilizing these data (internally for
further development or benchmarking or externally by cross-selling or including
external offerings) this pattern is reasonable to apply.
Razor/blades + Lock-in: In order to use this pattern, it should only be possible to use
the basic product with an additional service/product that must be purchased. Once
the customer owes the basic product, changing to another provider becomes more
difficult, which is necessary when multiple competitors exist offering a substitute
product. Furthermore, using this pattern rises the chances for further sales of offerings
connected to the basic product.
Self -Service: Using this pattern requires the service/product to have a high degree
of usability and guaranteed access to it without involvement of the provider.
5 Discussion
These findings on one hand contribute to scientific research on business model pat-
terns. While past research has strongly focused on characterizing and explaining
business model patterns answering the question “how” they can be used for a transi-
tion to new business models, this study extends the body of knowledge by providing
insight to the question “which” patterns to use, “why”, and “when” in respect to a
project’s specific characteristics. Since these findings originate from the assessment
of real-world innovation projects and are based on interviews with the decision-
making project managers who have been involved in the design of the business
models from the very start, this research can be seen as unique when comparing to
other publications to the field of business model patterns.
On the other hand, this study contributes to the managerial practice of using
patterns for business model innovation. Drawing from knowledge from previously
successfully applied business logics, it provides a selection of patterns that poten-

tially drive profit, presents categories which may be considered when choosing profit
driving patterns and offers a list of influencing factors, levers and prerequisites that
provide guidance and support the individual choice of profit driving patterns for any
IoT project.
6 Conclusions
This study has sought to provide direction in addressing the question of which busi-
ness model patterns to use in IoT businesses, when profitability is the objective, in
respect to the individual project’s characteristics and environment.
The proposed findings present nine patterns that potentially lead to a direct profit
effect. These patterns are Add-on, Direct selling, Flat-rate, Freemium, From push to
pull, Guaranteed availability, Leverage customer data, Razor/blades + Lock-in and
Self-service.
The analysis of the conducted case study uncovered, that successfully applied
business models evaluated the business model patterns they have chosen based on
the following three categories:
1. Service/product characteristics
2. Company/project and market characteristics
3. Customer and partner characteristics and relationship.
Further assessment revealed that each potentially profit driving pattern has a dif-
ferent set of prerequisites and factors that influence the success of its application. The
experience of nine project managers who applied profit driving patterns in successful
business models is categorized and summarized in Appendix 1.
In conclusion, when developing business models for IoT offerings with the aim
of profitability, the potentially profit driving business model patterns identified in
this paper may be used. However, in order to choose the right fit of profit driving
patterns for a specific project, the presented categories may be considered as well
as the proposed prerequisites and influencing factors that can provide guidance and
support a sustainable choice matching the patterns with the projects characteristics
and environment.
However, the findings do not come without limitations. Business model patterns,
in general, are an abstracted view of recurring effects across successful business
model innovations and thereby not an exact refection of the reality. Furthermore,
they depend on the individual interpretation of the practitioner.
The initiatives reviewed were assessed punctually, which is why they may be
missing results only apparent during a long-time study. Though, in order to minimize
this effect, we interviewed the project leaders who were responsible for the initiatives’
business models from the very beginning.
The patterns assessed are, as described, a selection focusing on the relevance
for IoT business models. This selection is based on criteria the authors defined and
thereby comprises a certain degree of subjectivity. The same applies to the taxonomy
used for the identification of the profit driving patterns.
Therefore, the study does not claim to be complete, not least due to the authors’
prior work and experience gathered in this field, which may cause a certain degree
of bias.
Appendix 1: Summary of the Influencing Factors, Levers

and Prerequisites for Each of the Profit Driving Patterns
Add-on
Product/service The following offering is possible:
characteristics • Additional service/product/components
• Differentiating component of service/product as add on
• Selection of features
Product is of a modular design
Service can be specified for each customer (based on choice of
features/components)
Company/project and Project efforts are continuously pursued and thereby product/service
market characteristics improved/developed further
Financial resources are limited in the beginning but expected to grow
over time
Customer data are gathered continuously
Customer and partner Customer requires to choose exact configuration of service/product
characteristics and Target group can be small as well as large scale customers
relationships 3rd parties are involved
Direct selling
Product/service Implementation/installation of product is complex
characteristics Service/product requires a personal sales process
Company/project and Direct sales channels already exist
market characteristics Overview about customer groups is desired
Customer and partner Contact to customer already established
characteristics and Customer requires direct contact
relationships Customer requires individual offer
Direct interaction with customer required due to technical issues
Sales through partners do not generate any additional value (but are
costly)
(continued)
(continued)
Flat-rate
Product/Service Service/product is complex and requires exploration by the customer
characteristics for its value to be fully recognized
Pricing of service’s/product’s value by customer is difficult
Product design allows for intense usage
Company/project and The completive situation requires to follow the competitors’ pricing
market characteristics and to offer the service/product as flat-rate
Customer and partner –
characteristics and
relationships
Freemium
Product/Service Amount of customers is a critical factor because:
characteristics • Existence of product relies on it
• Success of product relies on it
• Critical mass is a success factor of service/product
Product is supposed to be prominent (not a niche product)
Basic foundation needed for usage of specific features of
service/product
Company/project and Diffusion of service/product must happen fast
market characteristics Competitive products already exist
Low/non revenue during launch is acceptable
Customer and partner Intention to make customers attached
characteristics and Customers are already using rival products
relationships Customers require an easy switch of products (low barriers for
switching)
Customers’ willingness to pay is low
From push to pull
Product/service Service/Product is not yet developed
characteristics Service/Product is developed based on customer request
Company/project and (Many) competitive products already exist
market characteristics Project follows an user cantered development perspective
Customer and partner Strong contact to customer already established
characteristics and Customer expresses requests/demand
relationships A priori consultation of customers is possible/already realized
Leverage customer data
Product/Service Usage of service/product automatically generates customer data
characteristics Usage of offering automatically collects customer data
Company/project and Customer data are measurable and can be collected (technically)
market characteristics Intention to:
• Offer additional service/product
• Offer new service/product
• Continuously improve service/product
Intention to benchmark project
(continued)
(continued)
Customer and partner 3rd parties included in service/product offering
characteristics and Data can be sold to 3rd parties (cross selling)
relationships
Guaranteed availability
Product/service Service is an online service
characteristics
Company/project and –
market characteristics
Customer and partner Customer is willing to pay (extra) for guaranteed availability
characteristics and
relationships
Razor/blades + lock-in
Product/service Service/product cannot be used without additional
characteristics services/products/features that must be purchased
Company/project and Competitive products already exist
market characteristics Service/product is planned to be extended by additional
services/products/features
Customer and partner Customer is intended to be dependent on service/product
characteristics and
relationships
Self service
Product/service Service/product has a high degree of usability
characteristics Access to service/product can be guaranteed
Service/product can be used without involvement of provider
Company/project and –
market characteristics
Customer and partner –
characteristics and
relationships
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Customer Surveys as a Quantitative
Evaluation Tool for Digital BMI
Jan F. Tesch, Miriam Lehmbrink, Gerrit Remané

and Lutz M. Kolbe
Keywords Business model innovation · Evaluation · Conjoint analysis

Digitalization · Internet of Things (IoT)
1 Introduction
Driven by rapid advances in information and communication technology (ICT), and

the increasing pervasiveness of digital technologies and corresponding connectivity
of devices, companies are facing highly dynamic business environments. Products
that were once purely physical are becoming increasingly coupled with sensors,
actuators, and connectivity units, merging into hybrid solutions that offer a wide range
of services beyond the original physical function (Fleisch 2010; Atzori et al. 2010).
The digital transformation enables a variety of innovative business models by offering
new value propositions to customers, suppliers, and partners (Amit and Zott 2012;
Casadesus-Masanell and Zhu 2013; Chesbrough 2010). The technological progress
leads to a change from the traditional world of business—characterized by stability
Under review: Electronic Markets (EM).
J. F. Tesch (B) · M. Lehmbrink · G. Remané · L. M. Kolbe

M. Lehmbrink
e-mail: m.lehmbrink@googlemail.com
G. Remané
e-mail: gremane@uni-goettingen.de
L. M. Kolbe
and linear value chains—to an emerging realm of digital business opportunities,

which is more complex and distinguished by increasing levels of uncertainty and
multilateral value chain networks (Haaker et al. 2006; Bilgeri et al. 2015). Research
on digital transformation shifts from a technological perspective in earlier years, to
a now economic paradigm with an increased importance of the aspect of developing
and innovating new digital business models (Loebbecke and Picot 2015).
Digitalization and related aspects lead to a humongous change on how companies
innovate business models. Andersson and Mattsson (2015) explain that the innovation
of digital business models presents a central challenge for incumbents in several
industries. Furthermore, Solaimani (2014) and Westerlund et al. (2014) determine
that a lack of profound knowledge in business model innovation is the main reason
for the failure of projects to meet user needs and thus commercialize their services.
In sum, business model innovation (BMI) projects in this field face new rules of
competition and traditional managerial tools are questioned to be valid in this aspect
(Porter and Heppelmann 2014).
The research group around Casadesus-Masanell and Ricart (2010) theorizes the
phenomenon business model as result of strategic choices of the firm. Business model
innovation is perceived as consisting of a strategic stage, meaning a certain point in
time where a “firm [and its management] chooses the business model [archetype]
through which it intends to compete” (Casadesus-Masanell and Ricart 2010, p. 196).
In the later tactics stage, “tactical choices [are] made from amongst those available,
depending on [the] business model choice at first stage” (Casadesus-Masanell and
Ricart 2010, p. 196). The authors further state that strategic choices are very complex
and among the most difficult tasks for companies.
To pursue business model innovation in complex settings, researchers suggest
evaluation of the BM archetype based on a minimum viable product as a prototype
(Ries 2011). As an advantage, key assumptions of a business model archetype can be
tested and evaluated in direct interaction with pilot customers and thus strengthens
the preselected business model design. Disadvantages of MVP prototyping are that
it may be very costly and resource intensive and thus represents a major barrier to
pursue the endeavor. Furthermore, it limits the revision of the business model design
within the boundaries depending on the strategic choice in an earlier stage. Rather,
tactics of the preselected business model archetype are elaborated, which limits the
application of MVP prototyping to later stages of a BMI process.
Researchers and practitioners emphasize a gap in the aspect of evaluation in
business model innovation and corresponding tools (Burkhart et al. 2011; El Sawy
and Pereira 2013; Schneider and Spieth 2013; Veit et al. 2014). Some acknowledged
tools and methodologies already exist, such as frameworks (Osterwalder et al. 2010),
roadmapping (De Reuver et al. 2013), scenario planning (Tesch 2016) or patterns
(Remane et al. 2017). However, the majority merely has a qualitative characteristic.
In turn, some publications on quantitative means of evaluation exist, such as decision
support systems (Daas et al. 2013) or conjoint analysis (Giessmann and Stanoevska
2012). Quantitative tools bear the potential to enhance the reliability of key assump-
tions for a projected business model in a more profound way, such as the market
size and the willingness to pay of potential customers. However, as to the best of our
Customer Surveys as a Quantitative Evaluation Tool … 179
knowledge, existing publications only deal with the quantitative evaluation of tactical
choices within the boundaries of a predefined business model archetype. Hence, we
argue for a research gap in understanding the role of quantitative means of evaluation
in digital BMI in a strategic stage and outline the following research question (RQ):
What are the implications of quantitative evaluation in digital business model inno-
vation in a strategic stage?
To approach the RQ, this research paper conducts a single-case study with a pilot
case company from the technology sector. As a stereotypic field of application, the
case study investigates the situation of a strategic stage (Casadesus-Masanell and
Ricart 2010) in the firm’s endeavour to developing a smart home (SH) platform
solution. The team of researchers thereby played an active role in the elaboration
of strategic options within the case: a methodological approach to conduct conjoint
analysis (CA)—as an example instance of quantitative evaluation—is designed to
meet the specific features of digital BMI. To provide evidence, it is shown how the
approach gathered the relevant information for the pilot companys’ strategic options.
As the findings contributed to the decision base at the strategic stage of the decision
makers, this research paper thus offers valuable implications into the importance and
timing of quantitative evaluation tools in digital business model innovation.
In sum, the study anticipates making two contributions. First, the methodological
approach for CA in BMI is suggested to serve as a quantitative evaluation tool itself.
It contributes to knowledge as it is the first of its kind to taking into consideration
the critical features of the emerging economic paradigm of digitalized products.
Second, it is outlined how quantitative tools—previously considered in a tactics
stage—bear significant value for the strategic stage of BMI. Our research suggests
that quantitative tools may serve as an ex-ante elaboration and evaluation of strategic
options, which guides the path for later prototypal evolvement of the chosen business
model archetype.
The paper is structured as follows: we first provide an overview of existing research
related to the digitalization, business model innovation and the aspect of evalua-
tion, and conjoint analysis. Building upon this, we then outline the methodological
approach to incorporate CA, as a vehicle for evaluating customer segments and
value propositions quantitatively, into business model innovation. Subsequently, we
describe the outcomes of the application of CA in the real-world case of smart homes,
which provides evidence for further theorization for research in the discussion. The
paper closes with outlining the major contributions of this research project.
Hardware Physical Digital
Thing + IT = Thing-based function + IT-based service

Software
Local Global
Fig. 1 The Internet of Things-products-services logic. Adapted from Fleisch et al. (2015)
2.1 The Novel Economic Paradigm Around Digitalization

and IoT
The digital transformation is emerging as one of the major themes in the informa-
tion and communication technologies (ICT) sector (Atzori et al. 2014; Lee and Lee
2015; Miorandi et al. 2012; Singh et al. 2014). It describes a novel paradigm by
which objects become smart devices that are equipped with pervasive technologies
and interconnected over the internet to share information and provide value-added
services (Clark et al. 2015; Giusto et al. 2010; Perera et al. 2015). Applications can be
found in various contexts, with the following domains playing a leading role: smart
industry (Industrial Internet of Things), connected mobility, smart healthcare, smart
homes, smart cities, and smart energy (Lewis 2011; Vermesan et al. 2013; Atzori
et al. 2014; Perera et al. 2015; Kees et al. 2015; Arnold et al. 2016). As Fleisch et al.
(2015) outline, this paradigm may be expressed by a simple formula (Fig. 1).
One of the key aspects is the implementation of ambient intelligence, which is
enabled by the use of ubiquitous computing and the integration of context awareness
as “IT” among “things” as devices (Bandyopadhyay and Sen 2011; Broll et al. 2009;
Dohr et al. 2010; Dong et al. 2010). Ambient intelligence refers to an object’s abil-
ity to understand its environment, interact with people, react to changes, and make
independent decisions, thereby rendering these objects as smart (Whitmore et al.
2015). Smart “things” offer at least two distinct value propositions: a “thing-based
function”, meaning the traditional purpose of a physical product (such as e.g. a light-
bulb) and a digitally enabled, global service (such as an integrated alarm system
that uses attached sensors and actuators within the light bulb to detect burglars and
triggers other objects to respond) (Dlodlo et al. 2012; Glova et al. 2014). There-
fore, digital business model innovation faces an increased degree of complexity and
uncertainty, as mutual interdependencies between partners, suppliers, customers and
other stakeholders rise tremendously.
A prevailing archetype of digital business models can be identified as n-sided
market pattern Fleisch et al. (2014), also referred to as multi-sided platforms (MSP)
(Hagiu and Wright 2015; Hagiu 2013). As an example to this, in the connected mobil-
ity domain, one can observe the emergence of intermodal mobility platforms, that
bring together travelers (customers of the platform) and mobility providers (partners
of the platform). Also smart home solutions are a good example for the application as
a multi-sided platform (Giordano and Fulli 2012). Stereotypic barrier in the innova-
tion of MSP business models is to overcome a so-called “chicken-and-egg problem”,
meaning to raise a critical customer base in order to be appealing to partners, and
vice versa.
Digitalized products focus on what is technically possible instead of offering
what the customer desires (Solaimani et al. 2010; Solaimani 2014), which causes
a mismatch between the customer’s needs and the value propositions realized by
companies (Harper 2003; Howard et al. 2007). Although receiving increasing atten-
tion from both practitioners and scholars, current initiatives are struggling to gain
user acceptance and the concept is seldom realized on a large scale (Paetz et al.
2012). Therefore, to transform new technologies from push to market pull—which
is essential for the invention of a digital MSP business model—firms must develop
and innovate appropriate business models that create value for its target customers
(Solaimani et al. 2010; Harper 2003; Wilson et al. 2015). These findings thus imply
that within the process of innovating business models for digital applications, the
role of customer-centric evaluation of business model ideas is a crucial starting point
for further strategic considerations and thus the elaboration of strategic options.
In sum, the innovation of business models is significantly affected through the
economic paradigm. The digital era differs significantly from former paradigms:
first, the uncertainties of the viability of a projected BM rises because of value net-
works and mutual interdependencies become increasingly complex. Second, multi-
sided-platforms are a prevailing business model archetype. The viability of an MSP-
business model is especially difficult, as the interplay of different customer groups
is almost impossible to predict. Third, customer centricity is a key factor for digital
BMI.
2.2 Digital Business Model Innovation and the Aspect

of Evaluation
With the emergence of the digital era, traditional technology companies—often with
a heritage of developing and selling physical products—now face business opportu-
nities of connecting their devices to the internet. In order to stay competitive, these
firms are required to find adequate business models that commercialize IT-based
opportunities, such as the use of collected data to enable new services (Laudien and
Daxböck 2016b). In the smart home domain, for instance, manufacturers of home
appliances may consider implementing sensors in refrigerators to enable service ori-
ented business models. Considerable ideas would be to lease refrigerators based on
usage, instead of the prior mode of simply manufacture and sell to customers. Another
idea is to monetize gathered user-data via cross-selling and so to establish a second
revenue stream, possibly cross-financing a lower sales prices to end-customers.
Already some research has been conducted on how companies might develop and
innovate business models to some extent in this context (Teece 2010; Cavalcante
Table 1 Phases of digital BMI processes (based on Tesch and Brillinger 2017, p. 10)
Analytical phase Validation phase Scaling phase
Explanation Ideation of concepts Prototypal validation Implementation of
for a novel business and continuous processes, resources
model design. refinement of a and activities of the
Preparation of pre-defined business business model within
customer centric model archetype in an the firm’s
testing with analytic MVP state organization;
partners and
The role of evaluation Ex-ante, qualitative Effectual, Evaluation of single
tools and analytical evaluation trial-and-error based components of the
methodologies of alternative business evaluation learning concrete business
model designs to from test-customer model (e.g. revenue
elaborate a set of interaction to identify model: pay-per-use
strategic choices the most promising vs. subscription) for
business model design the consistent setup of
for a market rollout business model tactics
Objective of the Selection of a set of Choice of a concrete,
resulting decision concrete business sufficiently
model archetypes (e.g. risk-and-return
multi-sided-platform) evaluated business
to be further model design for a
elaborated through a subsequent market
minimum viable rollout
product (MVP)
2014; Laudien and Daxböck 2016a; Tesch et al. 2017); In synthesis of the literature
(Table 1), business model innovation is described as an idea-to-launch-process, where
one can observe three phases for designing business models (Tesch and Brillinger
2017).
The analytical phase “[…] describes activities focusing on the understanding and
monitoring of the surrounding ecosystem of the innovating firm.” (Frankenberger
et al. 2013, p. 261). Evolving challenges in this phase of the innovation process are:
(a) to understand the needs of the stakeholders in the ecosystem and (b) to identify
drivers for change. Stakeholder of a firm’s ecosystem can be customers, suppliers,
competitors, governments, or other important influences on the focal firm’s activities.
In this context, changes in stakeholder needs and the emergence of other external
drivers for change (political, economic, sociological, legal or environmental advance-
ments) are factors triggering business model development or innovation processes
(Frankenberger et al. 2013). The validation phase describes activities that “[…] focus
on the development of a new business model based on promising ideas identified in
the [analytical] phase. They need to be transformed into a complete and viable busi-
ness model.” (Frankenberger et al. 2013, p. 263). A practical approach to this is
outlined by Ries (2011), who argues that rapid prototyping and being able to learn
from the customer by offering and testing a minimum viable product (MVP) already
in an early stage is the most appropriate and secures customer-centricity of the value
proposition. This newly developed BM needs to be implemented within the scaling
phase. Firms thereby include the BM in their existing organization and roll out the
BM in at least submarkets.
Regarding the evaluation aspect of business model innovation, latest research
(Tesch and Brillinger 2017) suggests field tests, showcases, research collaborations
based on a prototype, which is reflected by the second phase validation. This means
that a predefined business model design is realized, and subsequently tested in inter-
action with potential customers. However, the required financial and organizational
means for prototypal evaluation are especially high for complex BM with a high
degree of uncertainties. Particularly business model innovations dealing with a multi-
sided-platform (MSP), as outlined in Sect. 2.1, are archetypal for the IoT. In this
setting, one faces an increased degree of mutual interdependencies of the single
components of a business model (e.g. value creation, value capture, value delivery).
Developing a prototype MSP is costly and represents an immense hurdle for contin-
uing the BMI process, as, e.g., one has also to provide a surrounding test-ecosystem
where the interplay of several customer groups can be simulated (Tesch et al. 2017).
Especially in endeavors that radically change the way an organization does business,
confidence of an investor or corporate management on the general viability of the
archetype business model is required. Decisions for the funding for the integration
phase and thus prototype-based evaluation is in practice often required to be based
on quantitative value capture aspects of the business model innovation project (e.g.
risk and return). This, however, implies the necessity of analytical means of an ex-
ante-evaluation in an analytical phase. However, in both the theory and practice of
innovation processes, this aspect is often based on little-scrutinized assumptions due
to a high degree of uncertainties (Wirtz et al. 2010).
At the same time, the importance of identifying the target customer and a seg-
mentation concerning its value propositions is emphasized as a crucial aspect in an
analytical phase (Tesch and Brillinger 2017), in particular in the digital era with
an enhanced importance of customer-centric process of BMI. E.g., reliant quanti-
tative information on willingness-to-pay for a projected value proposition reduces
uncertainties in key assumptions for financial calculations for the kill/go decision
to fund the costly validation phase. Significant contributions to the aspect of man-
agerial tools and methodologies for BMI (Tesch and Brillinger 2017) include design
frameworks (Osterwalder et al. 2010), decision support systems (Daas et al. 2013),
roadmapping (De Reuver et al. 2013), metrics, scenario planning (Tesch 2016), sim-
ulation (Giessmann et al. 2013) or learning from analogies from past BMI through
patterns (Abdelkafi et al. 2013; Amshoff et al. 2015; Remane et al. 2017). How-
ever, the majority of scientific research (Eppler et al. 2011) and managerial literature
(Osterwalder et al. 2010; Gassmann et al. 2016; Gassmann et al. 2013; Bilgeri et al.
2015) rather focus on creativity methods and guidelines for ideation. Concerning the
above issues of developing and innovating digital business models, a corresponding
customer centric, analytical evaluation approach to obtain the required information
to elaborate strategic options in an analytical phase cannot be identified. Hence, we
argue that scientific literature lacks knowledge upon the role of analytical means
of evaluation in complex BMI endeavors, which is of particular importance to the
digital era.
2.3 Conjoint Surveys as Tool for Evaluating Digital Business

Models
Various methods may be taken under consideration for the endeavor to identifying
customer segments and their preferences on value propositions of projected business
models. For example, research on the adoption of technologies and consumer accep-
tance commonly builds upon survey-based acceptance studies, such as the technology
acceptance model (TAM) and the further developed unified technology acceptance
and use of technology (UTAUT) model (Arning and Ziefle 2015; Kossahl et al. 2012;
Mayer et al. 2011).
An empirical method that has been a proven means to investigate customer pref-
erences, customer segments, and their willingness to pay for products or services is
conjoint analysis (CA) (Hann et al. 2007; Kaufmann et al. 2013). CA originates from
market research, where it is widely used in various areas, such as product design or
pricing studies (Arning and Ziefle 2015; Känzig et al. 2013; Orme 2006). The basic
idea of this method is that consumers evaluate the value proposition of a product or
service by assessing combinations of attribute levels within holistic product evalua-
tions (Luce and Tukey 1964). CA thus is a decompositional model, meaning that the
preferences of single attributes can be decomposed by relating the known attributes
(independent variables) to the overall evaluation of a product or service (dependent
variable). Accordingly, the total preference for a product or service comprises the
sum of all part-worth utilities of a product’s attribute levels (Dietz 2012; Hair et al.
2010). It is also used increasingly in the field of digital products and services. For
example, Kaufmann et al. (2013) use CA to examine the customer value of smart
metering. Dütschke and Paetz (2013) investigate consumer preferences of dynamic
electricity pricing, while Poortinga et al. (2003) focus on the influence of household
preferences on the acceptance of energy-saving measures, and Arning and Ziefle
(2015) apply CA to examine preferences for video-based healthcare monitoring sys-
tems within the smart home context. Giessmann and Stanoevska (2012) apply CA
to estimate preferences B2B-customer’s preferences for the business model of a
platform-as-a-service (PaaS).
Compared to the above-mentioned research methods to evaluate customer seg-
ments and value propositions, CA allows for a more holistic investigation, as it
provides a realistic overall decision model. It thus enables ecologically valid results
related to various decision scenarios (Arning and Ziefle 2015; Bajaj 1999). Exam-
ining the importance and utility of both attributes and attribute levels via CA allows
inferences about the underlying value systems to be made, thereby enabling the
extraction of consumer behavior into quantitative indexes (Garver 2010; Johnson
1974; Nikou et al. 2013). Furthermore, CA can be used to identify clusters of cus-
tomer segments as well as estimate a customer’s willingness to pay, which is a crucial
factor for the success of a business model (Bilgeri et al. 2015; Backhaus et al. 2010).
In sum, scientific publications to use conjoint analysis as means of evaluation in
BMI (Giessmann and Stanoevska 2012; Daas et al. 2013; Hildebrandt et al. 2015;
Zibuschka et al. 2016) refer to a state where the archetypal business model, has
already been set and determined. Thus, these studies do not contribute to gather rel-
evant information for finding strategic business model options for strategic choices
(Casadesus-Masanell and Ricart 2010) in an earlier analytical phase of BMI. Rather,
these studies deal with tactics (Casadesus-Masanell and Ricart 2010), how to improve
an already determined archetypal business model design in terms of single compo-
nents, such as a revenue model and pricing. Furthermore, none of the publications
explicitly investigates business models with features stereotypic for the IoT era. As
to the best of our knowledge, there is yet no publication that explicitly investigates
the potential role of CA in business model evaluation and IoT innovation projects.
Hence, we argue for the need of a new methodological approach to incorporate
conjoint analysis into IoT BMI.
The remainder of this paper is structured as follows: first, a methodological
approach to incorporate conjoint analysis into the process of IoT business model
innovation is elaborated. It is designed to meet the requirements of IoT business
models outlined and to gather relevant information for a management decision to
financing a prototype business model in an implementation phase. To provide empir-
ical evidence, a single case study of a company’s endeavor to invent a smart home
business model is presented. It is shown how the methodological approach was imple-
mented into the analytical phase of the BMI project. Further, the case study reveals
how quantitatively evaluated strategic options for the design of releasing funds for a
prototype business model can be elaborated and how these may serve for a decision
base. We then discuss the impacts of the methodological approach to BMI in general
and further outline theoretical implications.
3 Methodological Approach to Incorporate Conjoint

Analysis
The following section describes the methodological approach to use conjoint

analysis-based surveys to contribute to a decision base for a strategic stage in BMI.
Starting point for the tool developed was considering books and guidelines for con-
joint analysis (Orme 2006), existing scientific publications on conjoint, their future
research suggestions (Backhaus et al. 2010), and studies to domains of digitaliza-
tion (Giessmann and Stanoevska 2012). We then iteratively elaborated the following
approach and thereby also considered guidelines for artefact development (Peffers
et al. 2007).
Table 2 Overview on publications applying conjoint analysis in context of business model inno-
vation
I. Development II. Identification III. Conjoint IV. Data analysis
of a reference solution features survey design
business model and attributes and study
realization
Activities 1. Elaborate a 2. Identify 5. Create study 9. Validate the
reference product classes package results (Logit
business model and features that 6. Select subjects report)
design that covers completely 7. Administer the 10. Determine
all possible describe that study to each customer
aspects of the possible value subject segments (Latent
desired business propositions of 8. Compute Class estimation)
opportunity as the BM survey results for 11. Compute
holistically as 3. Select each respondent: willingness-to-
possible appropriate determine pay
attributes and individual 12. Apply the
attribute levels utilities of all conjoint results
4. Operationalize attribute levels to the reference
each attribute in a (Hierarchical BM (Step 0)
suitable manner Bias)
Supporting IoT business Extensive Conjoint survey Conjoint survey
Methods and model builder literature review software results sheet
Tools Business model Expert interviews Business model
canvas Market research canvas
Value network
diagram
Results Identified Attributes and Individual Business model
solution features attribute levels attribute design based on
of the value preferences of customer
proposition each respondent segment as a
of the CA survey strategic choice
option
The chronological starting point of the tool is in an analytical phase of a BMI

project. In this situation, one has already identified existing strategic business oppor-
tunities in a certain industry. A BMI project team is set up with the task to elaborate
and evaluate ideas and to outline schemed business model designs as strategic options
for an investment board and/or senior management. Within this setting, the follow-
ing methodological approach helps to gather relevant information to quantify key
assumptions of financial calculations directly from potential customers (Table 2).
I. As a basis for elaborating a reference business model that is yet to be evalu-
ated, incorporate a series of workshops and several tools to funnel ideas from
technological advancements and perceived business opportunities into a con-
crete, holistic business model framework, such as the “Business Model Canvas”
(Osterwalder et al. 2010). A guideline how to structure the workshop series is
outlined by Bilgeri et al. (2015), who suggest qualitative tools and methodolo-
gies such as creativity methods, considering different “layers” of digital solu-

tions or business model patterns. As an outcome, one should have elaborated
a broad, holistic understanding of the wealth of options for the business model
design. This implies a qualitative pre-assessment of potential value propositions
and potential features of the (product/service) solution.
II. (2) To secure completeness of possible value propositions and also method-
ological rigor, the approach pursues a systematic literature review of possible
devices, solution features and attributes, and should be accompanied by expert
interviews of the corresponding market. The methodological approach follows
the literature review framework provided by Brocke et al. (2009): to define
the scope, Fettke’s (2006) framework on characteristics of literature reviews is
suggested, which builds upon the established taxonomy of literature reviews
by Cooper (1988). For the conceptualization, we focus on sources addressing
practitioners and general scholars in natural language, with research outcomes
explicitly dealing with central issues of digital solutions. The literature is to be
chosen selectively and the results structured thematically. According to Web-
ster and Watson (2002), the literature search should encompass leading journals
and conference proceedings, as major contributions are likely to be published
in scholarly journals and conference proceedings with a reputation for quality.
Next, browse several databases for an initial literature set, analyze titles and
abstracts, and omit duplicates. After fully analyzing the remaining articles, pur-
sue a forward and backward search (Brocke et al. 2009). (3) However, literature
often primarily focuses on technical products rather than emphasizing its value
added to customers’ quality of life. Value propositions to the customer can be
fulfilled by a variety of products and technical solutions (Fleisch et al. 2014; Bil-
geri et al. 2015). To address this issue, map value drivers of technical products
according to their impacts on the value propositions of the customers (Bilgeri
et al. 2015, p. 17). Next to value propositions, also derive suitable attributes
that relate to the perceived “quality” of the value propositions. (4) With regard
to the business model innovation context of digitalization, the attributes should
exhibit a low level of complexity because the topics consist of a high level of
abstraction and a high scope of IT integration (Hildebrandt et al. 2015). Fur-
thermore, the implementation of price as an attribute must be considered when
choosing a variant, as it is an important aspect for evaluating the willingness
to pay of different customer segments and therefore also crucial for evaluating
business models. To ensure valid and reliable results, the attributes and their lev-
els must fulfil requirements related to relevance, influenceability, realizability,
independence, mutually exclusion and limitation (Bajaj 1999).
III. To carry out a CA survey, one must first choose the conjoint variant most
appropriate for the objective of the study (Orme 2010, p. 45). Considering
these requirements, the choice-based conjoint analysis (CBC) (Sawtooth 2009)
depicts the most suitable variant for evaluating business models. CBC closely
imitates the purchase process of products in a real-world scenario in competi-
tive contexts (Orme 2010, p. 45). Instead of rating or ranking separate product
features, respondents are shown several sets of full-profile products from which
they selected the one they would purchase (Hair et al. 2010). Applying CBC
has various advantages: it leads to a reduced cognitive load in comparison
to the ranking and rating approaches, which are more complex and it allows
respondents to decline to purchase unacceptable alternatives by integrating a
no-purchase option (Hildebrandt et al. 2015). Thus, respondents are not required
to choose an option that does not satisfy them, allowing preferences to better
represent real-world situations. (5) Create a study package consisting of a sub-
set of all possible solution features in the product class. Both random tasks
using the balanced overlap method, and optionally fixed tasks in order to inves-
tigate on specific hypotheses, such as data protection policies or pricing models,
may be chosen. Additionally, as digital BMs are a hybrid of value propositions
through services and physical functions of devices, a Likert scale on device
importance might be implemented (Abu-Assab 2012; Gieseking 2009; Kras-
nova et al. 2009; Parks Associates 2014). The last part of the study should
consist of socio-demographic characteristics related to gender, age, employ-
ment, household, housing and net household income. The variables could be
adopted from prior CA experiments alongside this methodology, as they are
approved to be suitable as descriptive statistics in this area of research (Ger-
pott and Paukert 2013; Hildebrandt et al. 2015; Pepermans 2014; Känzig et al.
2013). (6–7) Pilot the survey and test for clarity of measures, time taken for one
study, any other implementation issues or possible biases of survey respondents.
After ensuring the comprehensibility of the study and the applicability of the
attributes and iterative readjustment in pre-tests, the sample subjects are cho-
sen, ideally based on literature recommendations of the application domain. A
software might be chosen to operationalize the identified attributes and attribute
levels to easy provide random choices to survey participants online. (8) After
collecting sufficient data, apply hierarchical bayes (HB) estimation (Gieseking
2009) to identify individual utilities for each attribute level of each respondent.
IV. In data analyzation, one seeks to reveal insights on customer segmentation,
corresponding ideal solution features, and an estimation on each customer seg-
ment’s average willingness to pay. (9) To validate the results, one first performs
several statistical tests, such as chi-square, t-test, and standard errors. (10) Latent
class analysis (Gieseking 2009; Backhaus et al. 2010), detects heterogeneity in
the choice data and can therefore be used to determine n customer segments
based on the respondents’ preferences (Sawtooth 2013). Based on the allocation
of each survey respondent to one of the n customer segments, one can derive
part-worth utilities and thus evaluate the ideal value proposition choice for each
segment. (11) Willingness-to-pay refers to how much value an individual con-
sumer is willing to pay for each attribute level and can be computed based on
part-worth utilities using the formula of Kaufmann et al. (2013). (12) Finally, by
taking into consideration eroded customer segments, their preferences regarding
value propositions, and corresponding willingness-to-pay, one can then apply
the conjoint results to the reference business model to elaborate a set of business
model designs as a strategic option. These may be then iteratively elaborated
and tested via a prototype in a validation phase of BMI.
4 Case Study: Developing a Smart Home Platform

Business Model
The following section depicts the application of the methodological approach to the
field of smart home platforms. The research project was undertaken in cooperation
with a pilot case company from the technology sector. The company may be char-
acterized as a conglomerate, which has historically operated in industry sectors with
primarily physical products. Examples include the production of power tools, home
appliances, security systems, E/E, building automation, heating and climating com-
ponents, healthcare, large machinery, spare parts for the automotive aftermarket, and
acting as a supplier for automotive OEMs. In the wake of the emergence of new
economic paradigms of digitalization and the Internet of Things, the pilot case com-
pany is now seeking to develop new business models across several domains. The
team of researchers was actively involved in elaborating in the strategical work of the
pilot case company; To the empirical investigations of the research team in the case
company’s smart home project is outlined in the subsequent subsections. Next to the
outlined applied methodological CA approach, the case also draws from additional
sources of information, such as interviews with practitioners, presentations, financial
calculations, minutes, or further internal documents and archival data.1 During the
time the case-study took place, already some smart home solutions were available
on the market, which served as input for the determination of attributes and attribute
levels of the CA survey.
4.1 Development of the Reference Business Model
A series of workshops with practitioners of the pilot case company applying the
methodology of Bilgeri et al. (2015) is conducted. The participants included asso-
ciates from business development, product development, engineering, and manage-
ment. Thus, a reference business model design is elaborated serving as a basis for the
derivation of attribute levels and value propositions for the conjoint analysis. Figure 2
presents a summary of this model using the business model canvas of Osterwalder
et al. (2010). Its archetypal pattern is a multi-sided-platform, as this also was already
proposed for the case of smart homes (Giordano and Fulli 2012; Tesch 2016). The
following paragraphs give a brief overview of the reference business model design.
The business model has one primary aspect: the sale of smart home devices, such
as thermostats, security cameras, smart lights, or smart door locks (highlighted in
grey). The value proposition to customers is that these devices might offer an increase
in automation, enhanced security, lower energy consumption, and new possibilities
for healthcare. There are several customer segments that could be addressed, e.g.,
younger people, who might be more interested in automation functionalities, or the
1 Additional information may be only obtained from the author team upon request due to confiden-
tially.
Key Key activities Value propositions Customer Customer

partnerships Develop SH relationships segments
devices SH-devices offering
A: Open app enhanced security, Service
development Build and healthcare, energy, Contract End-customer
community maintain SH automatization Segment 1
backend
B: 3rd party SH-
appliance Data Mining,
manufacturers A: App-distribution to end- End-customer
Data Processing Segment …
(e.g. lighting) Analytics customers (‘Appstore’)
C: 3rd party B: Increased Sales

service provider Key resources Channels
End-customer
(e.g. Airbnb) Brand Retail (Online Segment n
C: Demand-side
D: Grid-operators reputation management (DSM) and Stores)
Dev. Platform
E: Data and app store D: Ease of use of add-on Service
customers (e.g. services (e.g. Airbnb) Technicans
Insurances) Customer base
E: Information about SH
Business users
intelligence
Cost structure A: Royalties Rev. streams

Device on app- C:Service
Licensing sales sales fees
D: Demand-
Fees for End- Platform Customer Manufacture or side
User device develop- care own-branded Device B: Platform- E:Database manage-
(iPhone, ment devices lease licensing access- ment fees
tablet) revenues fees
Fig. 2 Smart Home BM adapted from Tesch (2016) and Osterwalder et al. (2010)
elderly, for whom healthcare aspects might be more appealing. The key activities of
the operator are the development of the devices and the building and maintenance of
a software platform that allows for the control and management of several devices
sold to residents. Most of the functionalities are controlled and triggered by software
within the backend. Based on this, the data collected could be used for statistical
analysis.
In the secondary part of the business model, there are five potential additional
revenue sources from secondary customers, further referred to as key partners (A–E),
highlighted in white in Fig. 1). This is enabled through the interaction with the
primary customer base (Hagui 2013). (A) Technical interfaces of the smart home
platform might be provided to an open app development community to enable writing
apps that add new or enhanced software-based functionalities and thus offer a better
user experience. Analogies might be drawn from the example of Apple and its iPhone
and iTunes, where developers are able to distribute their software through an app
store of the platform operator. In return, the developers must pay royalties and a
share of their revenues. (B) One allows other manufacturers of SH devices to be
integrated into the SH platform in exchange of a portion of revenues from device sales.
Such manufacturers profit from not having to develop their own platform and being
able to increase sales by offering compatibility. (C) Additional services concerning
automation can be enabled through the SH platform. For example, customers might
wish to order groceries online and have them delivered to their refrigerator, even
when they are not at home. A smart door lock could grant access for delivery at a
predefined date and time. Smart cameras would help ensure that the delivery person
does nothing other than his assigned tasks in the home. Another example is Airbnb,
where the handover of keys often presents an issue. Customer confidence in regard
to such service providers might increase, with the use of such a smart home platform
that made this task easier. In return, these service providers might be willing to
pay a commission fee. (D) In an environment of dynamic energy supply in a grid,
managing energy demand might be of interest. Examples include management of
electric heating/climating, washing machines, or recharging an electric vehicle—all
of which could be offered by a SH platform. Customers would profit from a lower
energy bill, whereas grid operators would be willing to pay a fee to minimize peaks
in energy demand. (E) The SH platform aggregates a wealth of data that can be
processed and analyzed. Just like Google or Facebook, this data can be used to
enable advertising or even selling information to B2B partners, such as insurance
companies.
However, at this point it is unclear how many end-customer segments exist in a
market, how value propositions are preferred in each segment, and how high the will-
ingness to pay for each segment is. Hence, we struggle in assessing crucial factors
of the end customer’s willingness to pay, making it difficult to evaluate the overall
viability of the business model and the overall business case. Furthermore, the mon-
etizable potential of the secondary part (B2B) remains unclear, as this is dependent
on several uncertain factors that draw from the characteristics and demands of the
B2C customers. For example, cross-selling of customer data to secondary partners,
such as insurance companies, cannot be evaluated without examining whether the
end-customer is willing to allow the cross-sale of data. In an extreme scenario, the
revenue streams from information sold to insurance companies can be almost as high
as the overall costs of the platform, making it possible to sell the devices at a sig-
nificantly lower price to increase attractiveness to B2C customers and gain a larger
customer base.
4.2 Identification of Solution Features and Attributes
We divided the wealth of value propositions into attribute levels that reflect different
levels of improvements for the customer. Alongside expert interviews, the literature
review helped us to identify several attributes that further determine the perceived
value proposition of the customer and thus drive the overall business model from
a quality and cost perspective. In total, we found 49 relevant sources identifying
13 individual IoT-devices, such as thermostats, that generally enhance comfort and
quality of life.2 However, as pointed out by Bilgeri et al. (2015), one must distin-
guish between value propositions, quality aspects and prices as solution features, and
their technical realization throughout devices. We found attributes of possible value
propositions in the field of automatization, energy savings, improved healthcare, and
enhanced security. Assigned attribute levels are outlined in Fig. 3.
2A detailed list of related literature may be found in the appendix.

Relevant SH Overall Aim of SH Solution SH Solution Inquired Attribute Levels in

Devices SH Solution Features Attributes the Conjoint Survey
Remote control of devices; intelligent

devices; additional services (e.g.,
keyless locks)
Data is protected; data might be used
Fig. 3 Identification of solution features and attributes
To examine the willingness to pay (WTP) for different smart home functionalities,
the price was included in the survey. There are two different ways identified of
purchasing smart homes: buying or renting a technology. For both variants, three
price levels were implemented in the CBC, derived from actual market prices for
a smart home starter pack. In the German market, there are several starter packs
available for approximately e199 (Archos 2015; Gigaset 2015; Quivicon 2015; Tado
2015), which represent the lowest price segment, and e319 (Honeywell 2015; RWE
2015), which corresponds to the middle price segment of the various solutions on
the market. The highest price for a starter pack was e499 (Tahoma 2015). The price
levels increase from the lowest price segment to the middle price segment as well as
from the middle price segment to the high price segment by approximately 60%. In
the case of renting smart home technologies, similar price ranges could be identified.
The lowest available price on the German market is e5.99 per month (Tahoma
2015), while e9.99 per month—an increase of 66%—represents the middle price
segment (Tado 2015). The highest price to rent smart home technologies is e19.99
(Mobilcom Debitel 2015). To adjust the increase of price for renting to be similar
to the increase of price for purchasing smart home technologies, the highest price
segment was adjusted to e15.99 per month, corresponding to a 60% price increase
from the middle price segment to the high price segment.
4.3 Conjoint Survey and Study Realization
The first part of the online survey explained general aspects of the survey topic.
This includes a description of the conceptual foundation as well as the attributes
and attribute levels derived. In addition, the attribute levels were clarified using an
example to ensure that all participants would be able to answer the survey questions
properly. The choice experiment itself comprised 12 choice tasks, each with three
concepts and a none-option. In this regard, a concept referred to the manifestation of
a particular smart home solution consisting of combinations of the attribute levels,
whereas the choice task refers to a set of concepts that are shown simultaneously
to the participants in the study (Hair et al. 2010). Two fixed tasks were included to
answer the hypothesis if customers accept a loss in data protection for lower costs
and to investigate preferences in between renting and purchasing pricing models
(Townsend et al. 2011; Balta-Ozkan et al. 2013). Further to that, statics about the
respondents’ general intent to purchase products or services as well as their affinity
to technology were gathered (Parks Associates 2014).
To ensure robustness of the survey, we conducted pre-testing and re-iteration with
23 participants. During a survey period of four weeks in August 2015, a total of 448
data sets were recorded. In total, 250 German speaking participants completed the
original test. No completed data records were disqualified by the Conjoint Software
due to unreliable answers. Applying Hierarchical Bias (HB), we computed the indi-
vidual utilities of each attribute level for each individual respondent (“zero-centered
diffs”).
4.4 Data Analysis
To verify the results, we undertook several statistical tests: chi-square, t-test, and stan-
dard errors. The tests validated the data obtained. Latent class estimation (Gieseking
2009) revealed an ideal segmentation of three customer groups. We then computed
the part-worth (PW) utilities of each attribute level from the individual part-worth
utilities for each segment. Using the methodology and the equation of Orme (2010),
we computed each customer segment’s willingness to pay (WTP) for each attribute
level. A positive WTP indicates the willingness to pay a price premium for a certain
attribute level, whereas a negative WTP indicates the necessity of a discount in the
total price to sell this attribute level. For each segment, the preferred attribute level
is highlighted in bold (Table 3).
4.4.1 Customer Segments
Based on part-worth utilities, one can compute relative importance of solution fea-
tures (value propositions, price, and quality). Three segments were identified based
Table 3 Conjoint Survey Results Sheet
194
1. Privacy oriented 2. Price–Performance 3. Conservative

PW utility WTP PW Utility WTP PW Utility WTP
Buy (e) Lease (e) Buy (e) Lease (e) Buy (e) Lease (e)
Value Automatization:
propositions
Remote control 0.064 38 1.21 −0.003 −1 −0.08 0.045 10 0.43
of devices
Intelligent 0.034 20 0.65 0.007 3 0.22 0.036 8 0.34
devices
Additional −0.099 −59 −1.56 −0.005 −2 −0.14 −0.081 −18 −0.77
services (e.g.
keyless locks)
Security:
Security and 0.46 277 8.63 0.214 85 6.36 0.303 68 2.86
alarm systems
included
not included in −0.46 −277 −8.63 −0.214 −85 −6.36 −0.303 −68 −2.86
the package
Energy:
Monitoring of 0.353 213 6.63 0.095 37 2.83 0.236 52 2.23
energy
consumption
(continued)
J. F. Tesch et al.
Table 3 (continued)
Saving 0.373 225 7.01 0.152 60 4.53 0.271 60 2.56
energy/money
not included in −0.727 −218 −13.6 −0.247 −98 −7.36 −0.506 −113 −4.79
the package
Healthcare:
Monitoring of 0.179 108 3.35 0.107 42 3.18 0.052 11 0.49
health status
Enables 0.117 70 2.19 0.015 6 0.45 0 – –
additional health
services
not included in −0.296 −178 −5.54 −0.122 −48 −3.63 −0.052 −11 −0.49
the package
Customer Surveys as a Quantitative Evaluation Tool …
Quality Reliability:
features
High −0.037 22 0.68 0.307 122 9.15 0.578 129 5.46
(continued)
195
Table 3 (continued)
196

Low 0.037 −22 −0.68 −0.307 −122 −9.15 −0.578 −129 −5.46
Data protection:
Data is 1.578 953 29.6 0.237 94 7.05 1.022 229 9.65
protected
Data might be −1.578 −953 −29.6 −0.237 −94 −7.05 −1.022 −229 −9.65
used
Installation:
Easy, no 0.111 67 2.10 0.065 25 1.93 0.055 12 0.52
technical
know-how
needed
Technical −0.254 −153 −4.80 −0.135 −53 −4.00 0.055 12 0.52
know-how
needed
Installation 0.143 42 2.70 0.07 27 2.07 −0.11 −24 −1.04
through expert
included
NONE Option −0.173 −1.132 1.972
Price for the 1.690 53.18 433 32.57 519 21.97
“ideal” SH
J. F. Tesch et al.
on the values of best replications: (1) the privacy oriented segment (28.5%), (2)
the price–performance oriented segment (42.5%), and (3) the conservative segment
(29%). The results clearly indicate that customer segments differ in terms of valuing
the importance of prices, quality and value propositions. For example, the privacy-
oriented segment is willing to pay a significantly higher price for the smart home
solution, but expects wider value propositions and higher quality.
4.4.2 Solution Features—Value Propositions and Quality Attributes
Divergent views on the importance of quality attributes were the main driving force
for the latent class estimation for this customer segmentation. In segment 1 (28,5%),
the protection of private data is most important. Thus, it can be assumed that this group
would only be willing to buy a smart home solution if the data were protected. The
second segment, the price–performance oriented (42.5%), is most price sensitive. The
protection of data and allowance for secondary use of information are less important
than they are to other segments. The conservative segment (3) remains unconvinced
to buy a smart home platform solution, as represented by the positive part-worth
utility of the none-option for this group. Hence, we interpreted this segment to be
unattractive as this implies too little interest in a smart home solution.
The attributes security and energy display the highest importance for value propo-
sitions across all segments. This means that customers emphasize this aspect in buy-
ing decisions, whereas attribute levels in the field of automation play only a minor
role. It is especially remarkable that across all customer segments, the enabling of
additional smart services as the highest attribute level of possible automation reveals
the lowest part-worth utilities. Although survey participants value being able to con-
trol devices remotely, a more integrated level of intelligent devices is seen as neutral.
Enabling additional smart services, compared to the lowest level remote control,
discourages customers from purchasing a smart home solution. Furthermore, in both
automation and healthcare, the least innovative attribute level is assessed to be the
most suitable for all customer segments.
4.4.3 Willingness-to-Pay
Table 3 also outlines the customers’ willingness to pay (WTP) for each attribute
level and each customer segment. In terms of the modular creation of a business
model, one can select a level for each attribute to gather information on the WTP
for several variants. Adding up the WTP values for the preferred attribute levels
for each segment, we found that the privacy-oriented segment would pay a price
premium of up to e1690, or e53.18 per month (c.f. Table 3). The segment that is
price–performance oriented agreed on an average of e433, or e32.56 monthly.
In addition to the random choice sets shown for survey participants, we included
two fixed tasks to shed light on the hypothesis of willingness to provide data in return
for a lower price and the preference of renting a SH solution instead of buying. For
each hypothesis, we implemented two concepts in the survey that were identical
except for in the attribute levels of privacy and acquisition (“fixed task”). Each
participant was presented with both tasks. The first fixed task indicated a preference
for buying rather than renting throughout all customer segments. The second fixed
task was implemented to evaluate whether consumers are willing to trade data privacy
for lower prices as well as to determine whether consumers are willing to pay the
highest price in return for more functionalities.
4.4.4 Application to the Reference Business Model
Each customer segment identified displayed different preferences, with the customers
willing to pay different prices for various smart home solutions. As described earlier,
the reference business model, implementing a characteristic multi-sided platform,
combines business relationships with primary (customers) and secondary (partner)
stakeholders. Due to the distinct requirements of the various customer segments,
this implies a significantly different setting of stakeholders involved in the business
model’s ecosystem, as illustrated in Fig. 4. Therefore, to fulfil the various customer
needs, a key finding of the survey is the need to adapt also other components of
the business model (e.g. key activities, key resources, customer relationships and
distribution channels) corresponding to each customer group, revealing that two
distinct business model archetypes will emerge to be viable in the observed market
and were thus options to be furtherly elaborated and tested in a subsequent validation
phase.
Customer Segment 1 (privacy oriented) shows a high preference for security, con-
cerning the use of user information and data privacy. For customers in this segment,
the purchasing price of a smart home is less important; they also accept higher prices
for an ideal smart home solution than other segments do (WTP e1690). Hence, it can
be assumed that customers in this segment purchase smart homes with a high price
premium if data privacy is offered in return. Thus, revenues from device sales are
key to securing high profitability. Furthermore, revenues from licensing third-party
devices that integrate into the smart home solution are expected to be of greater value
in the privacy-oriented segment than in others, as the WTP for a holistic SH solution
is more than three times as high as it is for others. Furthermore, this segment dis-
plays a strong preference for the energy attribute—particularly for the attribute levels
“monitoring of energy consumption” and “saving energy and money.” Thus, we can
assume that revenue streams from grid operators also play a role in the business
model for this segment. Selling information to data customers such as advertisers
or insurance companies, however, is not a possibility, as this would lower the WTP
for the SH solution to below zero. Besides, Segment 1 shows negative WTP if the
smart home solution enables value-added services, which are not accepted by the
customer. The resulting business model for Segment 1 is illustrated in Fig. 4 on the
left.
On the right (Fig. 4), customer segment 2 (price–performance oriented) shows the
lowest WTP for the ideal smart home solution (e433) but the highest WTP (e245)
Fig. 4 Viable business models for addressing Customer Segments 1 and 2 in the schemed by value
network diagrams (Bilgeri et al. 2015) (Simplified)
for a smart home solution where data can be used for a secondary purpose. Accord-
ingly, customers belonging to Segment 2 would accept a loss in privacy in return
for a lower price. Hence, it would be possible to sell information to data customers,
thereby increasing the revenue stream from this source. For example, the smart
home platform could provide personalized data to grid operators, thus increasing
their revenue stream, as personalized information can be more precise and thus more
valuable. Furthermore, providing personalized data opens up opportunities for addi-
tional services to be provided by third-party service providers. As secondary parts
of the business model are likely to be more attractive when achieving a high market
share, a viable business model in Segment 2 is to offer cheap devices to customers,
which—in an extreme case—are below manufacturing costs and are cross-financed
by key partners. Also other components of the business model designs (Osterwalder
et al. 2010), diverge significantly, as shown in Table 4.
4.5 Summary
The findings of the case study are that two general types of business models are
viable in the observed market for smart homes. However, their archetypal business
model design diverges significantly; the two models require completely different
designs for their technical products and solutions, such as thermostats and a backend
Table 4 Overview of business model choice options

BM for Customer Segment 1 BM for Customer Segment 2
(privacy oriented) (price–performance
oriented)
Key activities Develop high quality devices Secure customer base and high
Establish seamless market share with competitive
interoperability between pricing
devices Manage partner network
Secure high margins on
devices through excellent
marketing
Key resources Brand reputation Economies of scales to
Unique design language produce devices
across devices Access to additional data
sources
Superior data analytics
Customer relations Excellent customer experience Exploitation of ‘lock-in’
and brand recognition effects
Customer loyalty
platform. Quality attributes, such as data privacy, take an unexpectedly important

role in the purchase decision compared to the actual value propositions within the
customer segments.
Critically reflecting the outcomes of the appliance of the outlined methodological
approach, one may interpret the two business model designs as an elaborated reflec-
tion of Porter’s (1980) generic strategies—differentiation (Customer segment 1) ver-
sus cost leadership (Customer segment 2). This can be confirmed when comparing
the case to the mature market of smartphone operating platforms, such as the duopoly
of Apple’s iOS and Google Android. Similar to the smart home case, end-customer’s
preferences differ significantly in terms of preferences on value propositions and
willingness-to pay; Apple’s strategy is to achieve high margins through unique look
and feel, whereas Google seeks to achieve high market share through lower priced
devices and broader interoperability, but leverages customer data through n-sided
markets.
In fact, the two outlined business model archetypes reflect the options of the pilot
case’ companies’ decision at the major kill/go gate: elaborating both, deciding to
pursue one of the options, or terminate the innovation project. In the following, a
prototype business model and smart devices were developed and tested in customer
interaction. Meanwhile, the pilot case company successfully rolled out a further
refined business model and now is a substantial player in the smart home industry.
5 Discussion
The case study implicates that conjoint analysis—as an example of quantitative

evaluation tools—was identified as a suitable for identifying customer segments
and value propositions in an analytical of an BMI-project. The conjoint helped to
elaborate a decision base for management on the questions if and how to pursue
the BMI in a validation phase, or otherwise to stop the endeavor. In conclusion, this
research project and the empirical findings of the case study contribute to existing
literature as follows.
5.1 Using Conjoint as a Tool for Quantitative Evaluation

of Digital BM
Overall, this work presents a methodological approach to applying conjoint anal-

ysis—a traditional tool in market research and classical new product development
(NPD)—to the field of IoT business model innovation. The methodological approach
outlined is—to the best of our knowledge—the first of its kind to address the specific
requirements of the paradigm of the Internet of Things. In terms of BM tooling, it
improves three aspects of evaluation in IoT business model innovation compared
to existing: first, customer segments’ characteristics and size are clearly identified,
contributing to more precise assumptions about the number of potential customers
of a business model. Second, a quantitative measure upon the degree of importance
of value proposition and quality attributes of devices and services can be clearly
revealed. This leads to a more stringent BM design, thereby reducing risks of fail-
ure in subsequent phases. Third, predicting the willingness to pay of each customer
group renders financial calculations more precise; Hence, the outlined methodologi-
cal approach may be used as a vehicle to provide empirical evidence for key assump-
tions in an earlier phase of BMI. This results in more reliable business case calcu-
lations, revealing potential sources of high margins and increasing transparency on
the future potential of revenue streams. In a nutshell, the methodological approach
outlined is a means of quantitatively evaluating BM design ideas and to predict cus-
tomer and market behavior. Hence, this article suggests a novel tool for an analytical
phase is created that contributes to managerial practice.
5.2 Quantitative Evaluation in Digital Business Model

Innovation
The case study has shown that the evaluation of customer segments, their value
proposition preferences and willingness-to-pay holds essential implications for dig-
ital business models. In fact, the research project elaborated two strategic options
for developing a business model for a smart home platform, as 2 distinct archetypal
business model designs were pointed out. In this sense, the case study described the
partner firm’s situation around the strategic stage in a BMI-process. The strategic
choice at this stage induced significantly different innovation paths, as subsequent
trial-and-error elaboration and evaluation of the business model trough an MVP-
approach was requiring significantly different prototypes. In a later validation phase,
the boundaries for the prototype business model are clearly determined by the earlier
business model choice. Pursuing one of these options implied the development of
different key activities and resources which may later serve as a differentiating factor
to competitors. However, the case shows—corresponding to Casadesus-Masanell’s
and Ricart’s (2010) theory—that the strategic choice determines a certain path and
boundaries and thus hinders switching the archetypal business logic. Refinements
of the BM design and evaluated tactics revealed through the MVP in a validation
phase are not transferable to a different choice. Hence, these efforts are essentially
in vein when one decides to change the BM archetype. Thus, we argue that this bar-
rier increases the importance of making the right choice as a result of the analytical
phase of digital BMI; The outcome of quantitative tools—up to yet not sufficiently
researched in an analytical phase of the business model innovation project—are
therefore of higher value for the evaluation and elaboration of options for strategic
choices compared to former economic paradigms.
Developing a prototype multi-sided platform is complex and costly, as its full
effects only become tangible if a sufficient level of user experience and a sufficient
customer base is achieved. Hence, the case’s findings suggest that customer cen-
tric quantitative evaluation in an analytical phase contributes to reducing risks of
over/under engineering and pinpoints a pathway for developing a better prototype.
In this context, we argue that analytical means—previously rather seen as means for
the evaluation of tactics—hold essential implications for digital BMI at the strategic
stage. However, tools and methodologies need to be adapted to meet the specific
economic prerequisites. The scope of surveys is rather broad; in contrast to evalu-
ating tactics, where quantitative tools rather shed light on the profit-optimized price
for a concrete product/service and its value proposition, the strategic stage requires
to take into consideration the basic needs of customers in a certain domain. This
aspect is pointed out for the field of smart homes with the single case study; Analo-
gously, within connected mobility, customer-centric evaluation of time, comfort or
security aspects independent of the means of transport is an essential starting point
for deriving adequate MVPs to develop new, superior offerings. Quantitative tools
at a strategic stage do not allow for a detailed investigation to optimize single com-
ponents of a BM, such as a superior revenue model, as these need to be based on a
concrete value offering that can be directly experienced by the potential customer.
In a nutshell, customer centric, quantitative evaluation of customer segments and
value propositions captures a different role in digital BMI. Quantitative BMs may be
used in an analytical phase as means to elaborate and evaluate strategic options for
a business model. In contrast to former applications, new tools have to be designed,
that have a broader, but a less detailed scope of investigation.
6 Conclusion
To conclude on the research question on the implications of quantitative evalua-

tion in digital business model innovation, this research project points out that the
quantitative assessment of potential end-customers holds essential implications to a
determinant management decision at the strategic stage. In contrast to former eco-
nomic paradigms, where customer-centric evaluation tools rather served to evaluate
tactics for a predefined business model, the economic paradigm of the IoT requires
such considerations already at an earlier stage. To market new technologies and to
exploit emerging business opportunities in the digital era, the right business model
is the main source of a competitive advantage (Chesbrough 2010). This research
paper clearly reveals that the evaluation of customer segments and their preferences
on value proposition in a strategic stage thereby is essential to choose the right path
for further, iterative, customer centric elaboration of a superior BM design. Imple-
menting customer-centric quantitative evaluation—as with the example of conjoint
analysis—thus reduces the risk of failure of the BMI project in the digital context.
Limitation of this paper is the fact that implications are drawn based on a single-
case study. Hence, the paper at hand is an exploratory approach to shed light to the
field and should be enriched and confirmed by subsequent studies in alike domains
of digitalization, such as connected mobility, smart city or industry 4.0. Further
limitations of the case study itself lie in that the sample represents the German
population and the findings concerning the strategic choices for smart homes are thus
only valid for a single market. Hence, due to cultural differences, the methodological
approach might deliver deviating results in other countries.
To improve the methodology of using conjoint in digital BMI, we propose that
future research should join our approach with other means of evaluation to a holistic
framework. As an example, de Reuver et al. (2013) proposed using roadmapping for
BMI. This would further contribute to strengthening the robustness of the business
model design by means of stress-testing.
As Westerlund et al. (2014) outlined, the novel paradigms of digitalization and the
IoT require a major shift in future business model research. Business models in the
digital era are constantly enclosed by external pressures, such as competitive forces,
changing customer demands, technological improvements, the legal environment,
and social change. Hence, the validity of evaluation tools—both for new product
development and BMI in former economic paradigms—is questioned in the context
of digitalization. We thus propose that future research should investigate on the role
of other means of evaluation for BMI (Bouwman et al. 2012), such as qualitative
patterns (Remane et al. 2017; Amshoff et al. 2015), decision support systems (Daas
et al. 2013) or metrics in a digital context.
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Scenario Planning as a Causal Evaluation
Tool for IoT Business Model Innovation
Discovering the Role of Scenario Planning as an
Evaluation Methodology for Business Models in the Era
of the Internet of Things (IoT)
Jan F. Tesch
Keywords Business model innovation · Evaluation · Conjoint analysis

Digitalization · Internet of things (IoT)
1 Introduction
Over the past 15 years, both researchers and decision makers in corporations have
become increasingly aware that the development of business models concomitant
to product innovation is key for market success (Chesbrough, 2010). The so-called
Internet of Things (IoT)—in which machines, all kinds of end-user devices, and
further primarily physical products get sensors attached and some kind of intelligence
allowing them to communicate with each other—will further accelerate changes
in economic paradigms through ambiguous opportunities upon the collection and
utilization of data and information (Atzori et al. 2010). In an attempt to develop
business models, both theory and practice has shown that, until now, prevailing tools
and methodologies in Business Models have struggled with several peculiarities in
the context of digitalization and the IoT (El Sawy and Pereira 2013; Westerlund et al.
2014). It is especially complex for business models with multi-sided platforms (MSP)
(Andrei and Wright 2011), as money, goods, and information flow multilaterally
among suppliers, customers, and partners (Hagiu 2009). Thereby, several researchers
Previously published in Proceedings of the Twenty-Fourth European Conference on Information

Systems (ECIS), Istanbul, Turkey, 2016.
J. F. Tesch (B)

210 J. F. Tesch
have emphasized the importance of evaluation in an business model development

context (Veit et al. 2014).
In practice, evaluating business models means making assumptions for revenue
and cost calculations, for which prediction reliability in an IoT context is extremely
vague. Incumbents thereby have difficulties assessing technological developments
and responding to increasingly faster product innovation cycles (Hylving et al. 2012).
For instance, on the revenue side, income from data monetization is difficult to fore-
cast, especially in the B2B aspects of a MSP (Rai and Tang 2014). One way of dealing
with uncertain situations in classical strategic management and product development
is the use of forecasting methodologies. As an example, scenario planning is a promi-
nent tool in corporate strategy that is often used to systematically depict possible out-
comes of strategic decisions and thus to provide measures for reducing risks (Amer
et al. 2013). It has been proven that scenario planning led to outperforming market
performance (Schoemaker 1995) and can be key for creating strategic competitive
advantage.
The goal of the research project is to contribute to theory on business model
research in IS by validating how and to what extent scenario planning can be used as
a valid strategic tool for designing business models. In particular, we aim to deter-
mine whether the systematic use of scenario-planning methodologies in attempts
to innovate business models has an impact on decision quality and thereby leads
to competitive advantages. As a contribution to practice, we focus on developing
a strategic framework that allows for enhanced risk management in attempting to
innovate business models. The resulting method should thus provide transparency
for decision makers to evaluate the viability of investments in business model devel-
opment.
Our methodology builds upon an evaluation artifact by following a design sci-
ence research (DSR) approach applying guidelines by Hevner et al. (2004), Peffers
et al. (2007) and Gregor and Hevner (2013). The artifact was applied in several IoT
innovation projects in cooperation with a pilot case company. To secure the reader’s
understanding, the artifact is demonstrated with a Smart Home example.
2 Theoretical Background and Objectives
Analyzing the various aspects of business model innovation from a practitioners’

perspective (Bilgeri et al. 2015; Osterwalder et al. 2010) and reviewing theoretical
literature concerning the innovation process outlined (Teece 2010; Zott and Amit
2010; Burkhart et al. 2011; Veit et al. 2014) reveals that research has to date mostly
focused on the descriptive analysis of existing business models (identification) or
the rather qualitative ideation of new ones. However, there is little insight on how
to systematically elaborate business models design ideas. Moreover, it is widely
agreed that a rather iterative evolvement of business models is the most appropriate
means of securing the viability of the business model design process (Sosna et al.
2010; Veit et al. 2014; Frankenberger et al. 2013). A practical approach to this is
Scenario Planning as a Causal Evaluation Tool for IoT … 211
outlined by Ries (2011), who argues that rapid prototyping and being able to learn
from the customer by offering and testing a minimum viable product (MVP) already
in an early stage is the most appropriate. Effectual evaluation in the form of field
tests, showcases, and research collaborations is a means of counteracting the lack of
information about future market conditions (Sosna et al. 2010). However, particularly
in business model innovations that radically change the way an organization does
business, this requires the confidence of an investor or management on the general
viability of the innovation. Hence, the required means for effectual evaluation can
only be released if management receives some kind of transparency about the general
suitability and/or quantitative assessment of the business model innovation project
in terms of risk and return. However, in both the theory and practice of innovation
processes, the evaluation of business models before releasing the necessary budget for
the iterative evolvement is often based on little-scrutinized assumptions, particularly
in the context of the complexity that comes along with digitalization and the Internet
of Things (Wirtz et al. 2010).
Structured literature reviews from an IS point of view (Burkhart et al. 2011;
Veit et al. 2014) indicate that only some publications deal explicitly with evaluating
business models as a part of an innovation process. Major research gaps in this
field have been identified, as there are “limited insights on criteria and metrics for
an appropriate evaluation of business models, which is mainly caused by the small
quantity of [large-scale] empirical studies.” Furthermore, no “software-based tool
for the management of business model can be found so far, neither for visualization,
evaluation or simulation purposes nor as a holistic approach” (Burkhart et al. 2011,
p. 10). In a nutshell, “understanding, explaining, predicting, and designing IT-based
business models holds immense contributions to both research and the business
community” (Veit et al. 2014, p. 50). Nevertheless, there is insufficient testimony
about the validity of evaluation methods in general (Demil and Lecocq 2010).
As an attempt to address this issue, Tennent and Friend (2005) suggest implement-
ing scenario planning for the evaluation of business models. However, their approach
is applied only to the revenue calculation, thus missing crucial aspects on different
business model patterns (Gassmann et al. 2014), value propositioning (Osterwalder
et al. 2014) and dependencies on partnerships with suppliers and customers (West-
erlund et al. 2014). Kijl and Boersma (2010) demonstrate that scenario planning is
a reasonable extension to a holistic business model engineering process. In a later
study, El Sawy and Pereira (2013) implement scenario planning into their proposed
“VISOR framework” for business model innovation and revealed several extreme
“yanks” for their example instance.
However, further insight into its validity for business models in the specific context
of digitalization the IoT is still necessary from a theory point of view. To investigate
this in greater detail, we identified significant research streams from which we derived
the objectives of an artifact to be created. Following a DSR approach (Chap. III.3.3),
we identified three relevant research streams for an artifact, from which we derived
objectives for it. As outlined in the introduction, we define the following overarching
output as the first objective for the artifact:
212 J. F. Tesch
Objective 1: The artifact output increases transparency on the overall future viabil-
ity of the business model and thus aims to enhance the management decision base in
business model innovation processes.
Business models began to experience significant scientific consideration after the dot-
com crisis in 2001 (Demil and Lecocq 2010). At first, the major focus of such inves-
tigations lay on defining business models in general (Amit and Zott 2001; Gordijn
and Akkermans 2001), discussions on the definition and delimitation of strategy and
business models (Casadesus-Masanell and Ricart 2010; Magretta 2002), taxonomies
(Pateli and Giaglis 2004; Rappa 2004; Timmers 1998), and ontologies (Osterwalder
2004). This was later advanced through the perspective of the innovation (Amit and
Zott 2001; Baden-Fuller and Morgan 2010; Chesbrough 2010; Teece 2010; Zott and
Amit 2010; Heikkilä and Heikkilä 2013). Taking these sources into account, one
can observe four prevailing phases for designing business models: identification,
ideation, integration and implementation (Frankenberger et al. 2013). A rather prac-
tical approach from Bilgeri et al. (2015) reveals that the majority of tools used and
insights gathered are to be seen in the earlier stages of the innovation process, such as
ideation. With regard to the integration and thus evaluation, there is little knowledge
about relevant success factors and an a priori estimate of the long-term establishment
of new business models (Veit et al. 2014). A further yet largely unnoticed aspect is
the implementation strategy for business model innovation, such as business model
roadmapping (De Reuver et al. 2013). Thus, the evaluation of assumptions plays
a continuous role within the process of business model innovation throughout all
phases outlined.
(Bouwman et al. 2012) propose using scenario planning as a stress-testing
approach for evaluating business models. The information needed as an input for
scenario planning must be collected continuously throughout the prior innovation
phases (Bilgeri et al. 2015). Alongside the aspect of contributing to business model
decision support systems (BM-DSS) (Daas et al. 2013), scenario planning offers
insights on how to proceed with implementation and may be complementary to
roadmapping approaches.
Objective 2: The artifact should be easy to implement in corporate business model

innovation processes concerning different phases.
2.2 Novel Requirements for BMI from the Paradigms

of the IoT
Westerlund et al. (2014) investigate several challenges in innovating business models

in the emerging context of the Internet of Things (IoT), claiming for a major shift in
business model research. A good approach in identification and ideation is analyzing
several “business model patterns” that are prototypal in the context of the IoT (Fleisch
et al. 2014). Based on previous work of (Gassmann et al. 2014), the authors claim that
previously purely physical products, such as a light bulb, get sensors, actuators and
some data processing and communication units attached. Next to the already existing
physical function of the product, lighting in this case, the bulb offers possibilities for
additional services.
In addition, multi-sided platforms (MSP) or n-sided markets are the most prevail-
ing business model patterns in the paradigm of a digitalized future of the Internet of
Things and Services (Hagiu 2014; Tuunainen and Tuunanen 2011). There are sev-
eral partners (B2B) required for collaboration with the MSP operator. However, each
player in such a networked ecosystem tries to engineer its own compelling business
model that maximizes its own value share (Solaimani 2014). A further aspect is the
rally of incumbents to secure touch points with the end customer (B2C), such as in
the domains of mobility or smart living (Solaimani et al. 2013). Practice in busi-
ness model innovation in IoT contexts has shown that this particular aspect is often
not heeded when designing business models for the operation of such a multi-sided
platform. Gawer and Cusumano (2008, 2015) further outline the urge to achieve
a sufficient number of active (end-) customers of one segment in order to secure
attractiveness for other (B2B) customer segments.
Objective 3: The artifact should have a specific focus on business models with typical
digital patterns, such as multi-sided platforms or n-sided markets.
2.3 Business Model Evaluation and Tooling
Business models, particularly their revenue calculation sections, deal with future
value streams and are subject to uncertainty due to the issues described above. This
makes it important to highlight the degree of uncertainty within the business model to
increase transparency for decision makers. However, traditional strategy tools (e.g.,
Porter’s generic competitive strategies, five forces, experience curves, portfolio anal-
ysis, or the Ansoff Matrix) are becoming increasingly unreliable due to today’s high
volatility, shortened product lifecycles, and increased complexity of organizational
networks (Westerlund et al. 2014). We have identified some general methodologies
for assessing the viability of digital business models and making risks more tangible
for a management decision board: Descriptive methods, such as metrics, analyze
business models from a performance measurement point of view. Prediction meth-
ods, e.g., causal network models, agent-based modeling, business war gaming or
214 J. F. Tesch
system dynamics, aim to estimate future multidimensional value, revenue and data
streams as described in the previous subsection (Schoemaker et al. 2013). While
these models are a proven way of predicting impacts and carving out probabilities of
possible scenarios, they often turn out to be too complex for IoT projects. Further-
more, as already (Tennent and Friend 2005) outline, such predictive models often do
not make sense if not carried out with a great amount of effort. Within BMI projects
in context of the IoT, practitioners face a significantly greater number of uncertainties
and higher volatility of driving factors. Hence, we argue that implementing scenario
planning into the process of IoT-related BMI is of greater value than in ordinary BMI
projects.
However, scenario planning, which aims to project a “what-if” perspective in sit-
uations of uncertainty (Bradfield et al. 2005), has been garnering increased atten-
tion in corporate strategy. Its most commonly known successful application was by
Royal Dutch Shell, who consistently outperformed competitors in oil price predic-
tion (Schoemaker 1995). However, there has been little scientific insight into its
concrete application in the paradigm of business models, as orchestrating business
processes into an overarching corporate strategy (Magretta 2002) to create and cap-
ture value. Nevertheless, as, e.g., Tennent and Friend (2005), (Osterwalder et al.,
2010), Kijl and Boersma (2010) (El Sawy and Pereira 2013; Kijl and Boersma 2010;
Tennent and Friend 2005) and El Sawy and Pereira (2013) scheme, we expect it to be
a suitable method for holistically strengthening the robustness of business models.
Scientific publications integrating scenario planning and business model innovation
as a strategic tool include the work of a business model tooling research group around
(Bouwman et al. 2012), who derived strategic options as a decision base for an IPTV
service (Bouwman et al. 2008b) or intermediaries in the insurance sector (Bouwman
et al. 2009). Learning from these publications, we can derive the next objective:
Objective 4: The artifact should include distinct scenarios but still be practically
usable within a real-life corporate business model innovation process.
The business model ecosystem in an IoT future is likely to be subject to political,

economic, sociological, technological and ecological changes (PESTE), which from
an evaluation or respectively from a scenario planning point of view are sources
of external factors that drive business model success (Yüksel 2012). The wealth of
conceivable options for digitalization and the IoT, such as the unclear evolvement of
data protection laws in a certain market, causes the above well-described uncertainty
in business model innovation processes. As this creates inscrutable complexity, suf-
ficient factors must be considered in order to ensure the information value of the
scenario planning as a decision support system (Schoemaker et al. 2013; Daas et al.
2013).
Objective 5: The artifact should consider a sufficient depth of paradigm changes of

the surrounding ecosystems (PESTE analysis).
3 Methodology: Design Science Research (DSR)
As a methodology to build an artifact, we followed the approach outlined by Peffers

et al. (Peffers et al. 2007). We also considered the seven principal research guidelines
to provide a consistent and viable result by (Hevner et al. 2004). The research was
undertaken between fall 2014 and winter 2015. Table 1 lays out the methodology in
greater detail.
Because design and development (3), demonstration (4), and validation (5) of
the artifact requires to be conducted in a rather iterative manner, (Sein et al. 2011)
Action Design Research (ADR) was selected as an approach for these activities
(Fig. 1). Starting by reviewing past BMI projects of the pilot case together with
practitioners, an alpha version was designed by considering and combining existing
tools from theoretic literature. This alpha version was then applied in the working
team (practitioners) of the pilot case company, and its outcomes were assessed by end-
users and industry experts. Implementing guidelines from Iivari and Venable (2009)
and Wynn Jr. and Williams (2012), we systematically structured the subsequent
interviews with practitioners and end-users to obtain feedback on the fulfillment of
objectives and the validity of the artifact and outcomes. Based on this, the researcher
designed the next versions (beta, gamma) and Activities 4–6 were reiterated until the
process came to a saturation where redesigns of the artifact would not have let to a
better fulfillment of the objectives.
As artifact validation is crucial for ensuring the quality of the theoretical contri-
bution to knowledge, we emphasize our focus on this aspect. Additional guidance
by the work of (Gregor and Hevner 2013) secures knowledge contribution to the
Contributions
Researcher(s):
Research Institution Validity that using
cooperating with the scenario planning
pilot case corporation leads to enhanced
BMI in an IoT-
context
Practitioners:
Corporate business
Management tool
development (HQ
to evaluate BM in
staff division) Artifact
the context of
digital innovation
and IoT
Improved,
evaluated and
End-users: Alpha Version
Beta Version viable business
Industry and product model designs;
divisions (e.g. smart implications for
home, mobility) product
development
Fig. 1 Design, development and evaluation of the artifact: Action Design Research (ADR).
Adapted from Sein et al. (2011)
216 J. F. Tesch
Table 1 Overview on activities following a Design Science Research approach based on Peffers
et al. (2007)
1. Problem identification and • Literature review and Research gap clarified and
motivation case-study research on confirmed (see introduction)
previous business model
innovation (BMI) and
tooling
• Expert interviews and
workshops with
practitioners and end-users
from the pilot case company
on previous BMI and tooling
2. Definition of objectives • Literature review to identify Done (see Chap. III.3.2)
relevant research streams;
preliminary model
requirements from activity 1
to confirm and extend by
theory
3. Design and development • Consideration of existing Artifact built after several
tools in business model iterations for improvements
innovation and the use of
scenario planning in other
contexts
• Iterative (ADR) approach:
application of the artifact in
real-world BMI projects;
learning and revising
prototypes (alpha, beta, …)
until reaching sufficient
saturation in meeting
objectives
• Additional seminars and
theses with graduate IS
students
4. Demonstration • Attending interdisciplinary Artifact applied in three
working teams of the pilot innovation projects
case company with the task
of elaborating business
models for several IoT
domains (e.g., smart homes
and connected mobility)
• Presenting the outcomes of
the artifact to decision
makers and senior
management
• Consortia with researchers
and business model
innovation experts
(continued)
Table 1 (continued)
5. Artifact validation • Critical reviews of the Artifact accepted as a valid
outcomes with end-users tool; in application at the pilot
and feedback to revise case company
prototypes from
practitioners
• Application of the artifact to
historical case studies of the
pilot case companies to
reveal whether use of the
artifact would have led to
better decisions in past
business model innovation
processes
• Workshops and theses with
graduate IS students
6. Communication • Conferences and scientific Several publications submitted
journal contributions and published
• Contributions to
practitioners’ outlets
• Ph.D. students’ consortia
• Presentations at innovation
summits
IS community. Moreover, experimental seminars and theses with IS students were

conducted to apply the artifact, thus obtaining further insight into the viability of the
resulting implications of the artifact in a theoretical testbed. We also applied further
IS- and DSR-related approaches (Dubé and Paré 2003; Paré 2004) to analyze his-
torical case studies, helping to clarify whether later outcomes of the artifact would
have had a significant impact on the business model viability.
4 An Evaluation Framework for IoT Business Model

Innovation
This section describes the artifact, which was developed regarding the research gaps
and requirements carved out from reviewing the literature and specifically adapted to
meet the objectives outlined in the theoretical background. It is a four-step, heuristic
process that results in clear advice for management. Table 2 presents an overview
of the artifact. As we experienced business model innovation processes to be rather
iterative in practice, we outlined corresponding BMI process phases according to
the 4I framework (Frankenberger et al. 2013). Each step is outlined further in the
subsequent subsections.
218 J. F. Tesch
Table 2 Overview of the key steps of the scenario-planning artefact

Initial design Recapitulation Scenario Impacts and
of driving creation counteraction
factors
Corresponding Identification Ideation Integration Integration
BMI phases Ideation Integration Implementation
Task Elaborate Investigate Build consistent Find alternative
reference ecosystem scenarios business models
business model changes Reveal key that respond to
design success factors scenarios
Methods Business Model PESTE-analysis Influence Key success
Canvas Uncertainty grid diagram factors
Scenario Stakeholder
dimensions network diagram
Result Understanding of List of driving Set of distinct Key
interdependen- factors of the scenarios differentiation an
cies of the BM business model BM-executing
with the player needs to
surrounding be successful in
ecosystem each scenario
Meets Obj. Objective 3 Objective 5 Objectives 4 and Objective 1 and 2
5
4.1 Reference Business Model Design
In a first step, a series of workshops with practitioners and end-users of the pilot case
company aiming to enter the smart home market is undertaken. Practitioners and
end-users comprise associates from business development, product development,
engineering, and management. We elaborated a reference business model that serves
as a base for the later derivation of uncertainties that are causing risks. As an archety-
pal pattern on how the business logic works, we chose the multi-sided-platform, as
proposed by (Giordano and Fulli 2012) for the case of smart homes.
Figure 2 presents a summary of the elaborated business model design using the
Business Model Canvas (BMC) of Osterwalder et al. (2010), which has been estab-
lished as the de facto standard typology for mapping and aggregating the various
aspects and of business models. Although other frameworks could be conceivable,
these primarily focus on four pillars: value proposition (“what”), value delivery
(“who”), value creation (“how”), and value capture (“value”) (Gassmann et al. 2014).
We found that the core strength of the BMC lies in the systematic identification and
consideration of key activities and key resources. These two are defined as key success
factors (KSF) as they differentiate the focal company from future competitors and
“ensure that the business model creates value for the customer and for the business
network” (Bouwman et al. 2008a; Bullen and Rockart 1981).
The business model has one primary part: the sale of smart home devices, such as
thermostats, security cameras, smart lights, or smart door locks (highlighted in grey).
Key Key activities Value propositions Customer Customer

partnerships Develop SH relationships segments
devices SH-devices offering
A: Open app enhanced security, Service End-
development Build and healthcare, energy, Contract customers
community maintain SH automatization (n segments)
backend
B: 3rd party SH-
appliance Data Mining,
manufacturers Data Processing A: App-distribution to end-
(e.g. lighting) Analytics customers (‘Appstore’)
C: 3rd party B: Increased Sales

service provider Key resources Channels
(e.g. Airbnb) Brand Retail (Online
C: Demand-side
D: Grid-operators reputation management (DSM) and Stores)
Dev. Platform
E: Data and app store D: Ease of use of add-on Service
customers (e.g. services (e.g. Airbnb) Technicans
Insurances) Customer base
E: Information about SH
Business users
intelligence
Cost structure A: Royalties Rev. streams

Device on app- C:Service
Licensing sales sales fees
D: Demand-
Fees for End- Platform Customer Manufacture or side
User device develop- care own-branded Device B: Platform- E:Database manage-
(iPhone, ment devices lease licensing access- ment fees
tablet) revenues fees
Fig. 2 Overview of the business model. Adapted from Osterwalder et al. (2010)
The value proposition to customers is that these devices might offer an increase in
automation, enhanced security, lower energy consumption, and new possibilities for
healthcare. There are (n) customer segments that can be addressed, e.g., younger
people, who might be more interested in automation functionalities, or the elderly,
for whom healthcare aspects are most relevant. The key activities of the platform
operator are the development of the devices and the building and maintenance of a
software backend that allows for the control of several devices; these are then sold to
residents. Most of the functionalities are controlled and triggered by software within
the backend. Furthermore, the data collected can be used for statistical analysis.
In the secondary part of the business model, there are five potential additional rev-
enue sources from partners (white). (A) We reveal technical interfaces of the smart
home devices that it is possible to write apps that add new or enhance functionalities
and thus offer a better or broader value proposition to the end-customers. Just as with
the example of Apple and its iPhone and iTunes, developers are able to distribute
their software through an app store of the SH platform operator. In return, the devel-
opers must share their revenues and pay royalties to the SH platform operator. (B) It
might be possible that one allows other manufacturers of SH devices to be integrated
into the SH platform. Such manufacturers profit from not having to develop their
own platform and being able to increase sales by offering compatibility. In return,
this can be compensated by sharing the revenues from device sales. (C) Additional
services concerning automation can be enabled through the SH platform. For exam-
ple, customers might wish to order groceries online and have them delivered to their
refrigerator, even when they are not at home. A smart door lock could grant access for
delivery at a predefined date and time. Smart cameras help ensure that the delivery
220 J. F. Tesch
person does nothing other than his assigned tasks in the home. Another example is
Airbnb, where the handover of keys often presents an issue. Customer confidence in
regard to such service providers might increase, were such a smart home platform
to be used. In return, these service providers might be willing to pay a fee. (D) In an
environment of dynamic energy supply in a grid, managing energy demand might
be of interest. Examples include electric heating/climating, washing machines, or
recharging an electric vehicle—all of which could be offered by a SH platform. Cus-
tomers would profit from a lower energy bill, whereas grid operators would be willing
to pay a fee to minimize peaks in energy demand. (E) The SH platform aggregates a
wealth of data that can be processed and analyzed. Just like Google or Facebook, this
data can be used to enable advertising or even selling information to B2B partners,
such as insurance companies. At this point, the business model outlined represents
a “best-guess” scenario of practitioners and end-users involved. Complementary to
the business model design described above, a projection of future financial aspects is
conducted using several spreadsheets. However, the future viability of the business
model outlined relies on several assumptions about future market conditions. These
include fixed and variable costs, prices customers are willing to pay, the size of target
customer groups, amount and strength of competitors, and the potential monetary
value added of data and information to partners.
4.2 Recapitulation of Driving Factors and Critical

Uncertainties
In this step, we critically review the above-described assumptions. As described

by Bilgeri et al. (2015), assumptions in the context of the IoT should be evaluated
throughout the whole business model design process via means such as field tests,
surveys (such as conjoint analysis), or effectual evaluation by marketing a minimum
viable product (MVP) and early learning from lead customers (Ries 2011). However,
within the practical examples we have undergone, not all factors causing these uncer-
tainties can be deliberated. To make their importance more tangible for management,
they can be ranked using two dimensions (Schoemaker and van der Heijden 1992):
the degree of uncertainty and potential impact, as pictured in the impact uncertainty
grid (Fig. 3).
The assumptions described above are dependent on several external (ecosystem)
driving factors stemming from political, economic, sociological, technological, and
ecological aspects. The so-called PESTE analysis (Yüksel 2012) describes the iden-
tification and consideration of these factors as a tool in the strategic management pro-
cess. In the smart home case, we held eight structured case interviews with external
experts, including technical, market, and industry specialists. Applying the method-
ology outlined by (Yüksel 2012) with a survey scaled from 1 to 9 and a subsequent
ranking algorithm, we were able to quantify the surveyed information in order to
add the external driving factors to Fig. 3. The PESTE analysis identified around 30
High
PREDETERMINED ELEMENTS/ TRENDS CRITICAL UNCERTAINTIES
U2: Consumer E U7: Intraday
S energy price
S Willingness to spread
S T
P E S U1: Data privacy E
S
needs
E U6: Cross-sell-
E U3 ability of
Ec Communicati T information
T S U4: Transaction
Potential Impact
P E E
U5: Share of
Ec U8: Maturity of costs P decentral
energy
E energy spot generation
S markets
Ec E
T
T
S
SECONDARY ELEMENTS E
Low
Low Uncertainty High
Fig. 3 Driving factors from PESTE analysis for the smart home case, illustrated by the impact
uncertainty grid (Schoemaker and van der Heijden 1992)
driving factors that influence assumptions of the business model and thus can be
identified as “critical uncertainties”.
4.3 Scenario Creation
As we found eight critical uncertainties, even just taking extremely low or high
parameter values would result in a scenario space of 28 256 scenarios. Considering
extreme parameter values for critical uncertainties provides insight on the worst-case
and best-case scenarios that represent a corridor of possible outcomes in the business
case (Schoemaker 2011). Although these possible outcomes are a good indication of
what could theoretically happen, they are rather unrealistic. Therefore, a consistent
set of parameter values for critical uncertainties had to be developed, thereby leading
to comprehensive scenarios within the corridor. To do so, we sought to gain further
insight into whether and how driving factors stand in causal relationships.
Within the previously described interviews, we also asked the external experts to
fill out a correlation matrix for the internal and external driving factors they men-
tioned. Applying (Van der Heijden 2005) influence diagram to reduce complexity
but still considering all key uncertainties, we assessed how the most critical uncer-
tainty factors are interrelated based on the findings (Fig. 4). As illustrated in this
smart home example, it turned out that two of the key uncertainties can be used as
preliminary drivers for determining a simplified but still realistic scenario space. In
other words, we were able to condense the complexity of possibilities into two key
scenario dimensions.
222 J. F. Tesch
Influence diagram Condensed Scenario Dimension 1

Data privacy needs + Customer willingness to provide
U1 U5 data + Communication Costs + Transaction costs + …
= “Cross-sell ability of information”
U3
U2 U8 Condensed Scenario Dimension 2
U4
Share of decentral energy generation + Transaction
costs + Maturity of energy spot markets + …
U6 U7 = „Intraday energy price spread”
Fig. 4 Using correlations between driving factors to identify scenario dimensions (simplified)
To construct comprehensive and distinct scenarios, we considered extremely rais-

ing or lowering outlooks for the two dimensions. As depicted in Fig. 5, the resulting
four quadrants set the foundation for formulating comprehensive but strictly distinct
scenarios (van ‘t Klooster and van Asselt 2006). These extremes are the basis for
what-if evaluation of the business model in a later step.
As shown in Fig. 5, key success factors identified for successfully competing in
each scenario differ significantly. The transparency revealed on this already enhances
the decision base for management and implies strategic adjustments for the business
model design and its implementation. In the next subsection, we take a closer look
at two scenarios to explain this in further detail.
Intra-day energy price spread high
Cross-sell ability of information

higher than originally assumed
Cross-sell ability of information
lower than originally assumed
(3) The “Energy” Smart (4) The “Hidden revenue”

Home Smart Home
KSFs: Scales with climate KSFs: Core competency in
solutions strengthen data processing and
negotiation position advanced analytics
(1)The “Lifestyle” Smart (2) The “Data” Smart

Home Home
KSFs: Fancy brand, KSFs: Access to further
superior quality, and user-specific sources of
functionality to boost data to scale value of data
margins in device sales and information
Intra-day energy price spread low
Fig. 5 Key scenarios for the smart home platform and identified key success factors (KSF) to
differentiate from potential competitors
4.4 Analysis of Impacts and Development of Strategic

Implications
Having developed transparency on the interrelations among driving factors, we cre-

ated scenarios that change the surrounding paradigms of the overall business model
landscape. Practice has shown that within the scenarios, key success factors differ
and the viability changes depending on the characteristics of the player executing
the business model. To counteract this, the business model of the smart home plat-
form must be redesigned to best respond to the characteristics for each scenario.
Figure 6 depicts corresponding stakeholder network diagrams (Bilgeri et al. 2015)
for Scenarios 1 and 4.
In the “lifestyle” smart home scenario (1), the business model of the smart home
platform should emphasize increasing sales from devices, as income from secondary
partners presents very little potential. Without a functioning spot market for energy
and thus a fixed price for energy throughout the day, there is no benefit for grid oper-
ators in the smart home ecosystem. One can assume that the energy-saving function-
ality of the smart home platform thus plays a minor role. The same is true for the
idea of cross-selling data to, e.g., insurance or advertising firms. Thus, in Scenario 1,
competitive differentiation to achieve superior margins comes from physical devices.
The focal firm should therefore focus on key success factors (KSF) to developing
devices that provide the customer with a unique functionality in terms of comfort,
such as automation, security, or healthcare. Further emphasis should be placed in
Fig. 6 Stakeholder network diagram (Bilgeri et al. 2015) for the “lifestyle” (left) and the “hidden
revenue” (right) smart home scenario
224 J. F. Tesch
offering superior device quality as a KSF, such as reliability and solid look and feel.
Furthermore, a strong brand reputation could serve as a KSF. As the vast opposite,
the business model of the “hidden revenue” smart home scenario implies maximiz-
ing revenues through secondary partners. This is highly reliant on the quality of data
gathered throughout the customers’ use. Sales from devices become less important,
whereas securing a large customer base is a key success factor for combining and
pursuing data analytics. To achieve this, an extreme consideration could be to give
away devices for free. Strategically, the focal firm should emphasize capabilities in
software and securing a highly capable backend platform as KSF. Furthermore, the
key to superior competitiveness is access to data sources outside the smart home
ecosystem that can be combined with user-related data.
The scenarios described above are extreme positions that span the corridor of
possible future developments. However, in all scenarios, the role of a smart home
platform as an enabler for additional services, such as autonomous delivery of gro-
ceries, appears to be a stable source of income in all scenarios. With the scenarios
illustrated as extreme positions, we developed transparency on what could theo-
retically happen. As part of a structured business model design process, investors
and management were able to quantitatively evaluate the financial viability of the
business model better than without employing the artifact. Furthermore, measurable
indicators of the scenarios and checkpoints as a trigger for altering processes of the
business model are be sketched on a timeline by combining them with technology
roadmaps, such as proposed by (De Reuver et al. 2013). This resulted in an actionable
implementation plan that outlines a pathway from a generic initial business model
to a scenario-adapted one, revealing whether one scenario is likely to become reality
or even leading to fully mothballing the whole business model innovation if nec-
essary. Hence, we are able to confidently ascertain whether key assumptions of the
business case would lie within a certain range in the future. We therefore acted out
different future opportunities, weak points, and strong elements to develop a plan
for determining how the initial business model must be transferred if corresponding
scenarios are likely to become true.
5 Discussion
As a means of validation in Design Science Research, the artifact was applied in three
real-world IoT business model innovation projects with a pilot case industry partner:
a smart home platform as described above, electric vehicle charging infrastructure,
and an ebike-sharing platform. We held interviews with end-users (industry experts),
practitioners (BMI experts) and senior management, who validated the outcomes of
the artifact and provided evidence that the systematic use of the scenario-planning
artifact as outlined led to better management decisions in their fields of responsibility.
The three innovation projects demonstrated that with the artifact, practitioners are
able to systematically reveal shortcomings in business model designs. It emerged as a
good input for critically reflecting upon design elements, allowing for risk reduction
of a future-proof business model concept (Objective 1). The artifact is explicitly valid
in an IoT context and is likely to be the foundation for the future development of
key resources of the pilot case company. In addition, we underwent several ex-post
case studies of past business model innovation attempts, which indicated that the
application of the artifact would have returned appropriate results. Furthermore, all
partners involved agreed on the validity and ease of use of the artifact (Objective
2). Referring to Table 2, the artifact has proven to be a valuable tool that helped
improve the evaluation of the future viability of the BM in all innovation phases of
a corporate BMI process. As (Frankenberger et al. 2013), e.g., emphasize, the BMI
process is typically rather iterative; therefore, the change of PESTE factors requires
that the scenarios be revised constantly over the course of the project. Through
its easy practical applicability, the artifact can to be iteratively computed to, e.g.,
trigger crucial steps for business model implementation at the right moment. The
artifact was designed to meet requirements from new business logics in the IoT, as
outlined in Objective 3. This primarily stemmed from the fact that the BMI projects
of the pilot case company had this characteristic; however, we argue that it might
be also used for business model innovation in general, as such projects typically
deal with less complexity and fewer interdependencies between customers, partners,
suppliers, and other stakeholders in the ecosystem. Considering Objectives 4 and
5, the wealth of possibilities that might be caused by a change in external PESTE
factors is tremendous. However, our artifact provides a heuristic approach for dealing
with extreme positions and, as with all simplifications and models, cannot perfectly
reflect reality as a whole. The outcome of the artifact is based on derived scenarios
(four in the smart home case), which can be seen as an abstracted derivation of the
set of critical uncertainties (eight in the smart home case), omitting impacts that
might stem from other PESTE factors. We nonetheless experienced the artifact to be
a valid compromise of consistency, depth of paradigm changes of the surrounding
ecosystem, and usability of the artifact in practice. All interview partners from the
pilot case company acknowledge the sufficient fulfillment of the requirements stated
in Objectives 4 and 5.
The main limitation of this research project is that the elaboration and validation
of the artifact followed by an ADR approach only took place in cooperation with a
single pilot case company. However, as this technology company is a conglomerate
operating in several industries and markets worldwide and thus the IoT projects were
diverse. Furthermore, the business model innovations investigated have not yet been
fully implemented or rolled out, so there are still no insights into real market success.
The artifact presented provides neither information on the probability of scenarios
nor evidence on quantitative assumptions.
There are several research opportunities for gaining scientific insights into the role
of evaluation and methodology beyond this research project. To increase the consis-
tency of scenario planning (Objective 5), we suggest extending the above approach
with further prediction methodologies, such as System Dynamics. Mapping quanti-
tative values for key uncertainties against historical and extrapolated data, one could
gain better insights into the likelihood of scenarios. While this requires a vast amount
of additional effort, we argue that it might be worthwhile in larger-scale projects,
226 J. F. Tesch
where ease of use (Objective 4) is only a minor prerequisite. If additional prediction

as described above is undertaken, the probabilities of the scenarios can be subsumed
to quantitatively calculate an overall assessment for risk and return as a basis for
management to make decisions. Further, ways in which customers’ needs and pref-
erences could be met regardless of existing solutions should be investigated in greater
detail. (Kim and Mauborgne 2005, 2004), for instance, present a well-approved and
feasible methodology for business model innovation (Osterwalder et al. 2010), but
it is yet to be tested in the setting of the new paradigms of digital transformation and
IoT (Westerlund et al. 2014). As a vehicle, we suggest investigating whether quanti-
tative surveys such as conjoint analysis could be a means of testing this methodology.
Especially in multi-sided platforms, one faces a “chicken-and-egg” problem, mean-
ing that the attractiveness for secondary (B2B) customer segments, rises with the size
of the B2C customer base and vice versa (Gawer and Cusumano 2008). An approach
to this would be an extension of roadmapping methods, such as those by (Abe et al.
2009), which may be joined with our scenario-planning approach.
6 Conclusion
We have presented an approach that created a valid artifact for evaluating and predict-
ing the viability of future business models in the context of the IoT. With this contri-
bution to ECIS 2016, we intend to further communicate and demonstrate the artifact
and this ADR approach. Above all, scenario planning can take over a central role
within evaluating assumptions in a business model design process. To conclude the
role of scenario planning, we again refer to the 4I framework by (Frankenberger et al.
2013). Within the ideation and integration segment, scenario planning improves the
consistency of the business model design. It reveals sources of risk caused by uncer-
tainties—both internal (unrealistic assumptions) and external (PESTE) factors—thus
contributes to the continuous assumption evaluation in business model innovation
(Bilgeri et al. 2015). Actual management decisions are enhanced by revealing best-
and worst-case scenarios, thereby increasing transparency on the risk and return of
the innovation project. In implementation, the different scenarios serve as input for a
subsequent implementation roadmap plan. Thus, using scenario planning iteratively
in business model innovation helps to identify and emphasize on the importance of
key success factors for the focal firm. Adequate planning of future key activities and
strategic management decisions to establishing future key resources are therefore
essential for securing a superior market positions in complex ecosystems.
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Part IV
Contributions
In the era of the Internet of things (IoT), the aspect of developing and innovating
superior business models is a crucial factor for securing companies’ future success.
Therefore, the goal of this cumulative dissertation is to promote a holistic under-
standing of how to innovate IoT business models and to provide a multitude of
tools and methodologies that enable scholars and practitioners to evaluate business
models. The overall thesis comprises seven individual studies, encompassing—next
to further sources of data—a total of 133 individual interviews with BMI practi-
tioners, 250 questionnaires and 104 reviewed research papers on the aspects of
decision-making and tooling.
Part IV recapitulates the findings of each study in relation to the outlined
research questions. It further accumulates implications for research and practice and
ends with an outline of limitations and avenues for future research.
Findings and Results
Jan F. Tesch
Keywords Business Model Innovation · Internet of Things · IoT · Digitalization
This chapter summarizes the findings of the two core research questions provided in
the introduction: first, describing how business model innovation may be systemati-
cally pursued in the era of the Internet of Things (IoT) and second, what role several
types of evaluation tools and methodologies may cover within a firm’s endeavor to
innovate business models. The studies presented in this book have a primary focus
on the activities of incumbents in manufacturing physical goods. However, the find-
ings may also be transferred to problem sets within large (IT-) corporations, small
and medium enterprises (SMEs), as well as start-ups in a variety of industries and
contexts. The findings of Part II lay the foundation for researchers and practitioners
to gain an improved understanding of chances, challenges and pitfalls of business
model innovation within the new economic paradigm of the Internet of Things (IoT).
Part III takes a holistic view on the three relevant evaluation methods, and explores
the role of tools and methodologies based on real-world examples from innovative
IoT projects.
1 Business Model Innovation in the Era of the Internet

of Things (IoT)
The issue of how business models can be developed and innovated systematically in
the era of the Internet of Things (IoT) was the first research question. Two sequential
studies were completed in order to consider this from the perspective of making
J. F. Tesch (B)
234 J. F. Tesch
decisions, and the use of supporting tools for decision-making across several BMI
projects. Unlike other researchers, such as Laudien and Daxböck (2016a), Caval-
cante (2014) or Frankenberger et al. (2013), who focused on identifying characteris-
tics of different BMI phases based on expert interviews and anecdotal evidence, the
approach of this research was to focus on recurring decisions within BMI projects.
Combined with a systematic literature review on acknowledged tools and method-
ologies, which are mapped to different characteristics of recurring decisions, the
combined findings of Part II allow for the elaboration of a holistic BMI process
framework for both scholars and practitioners, which also proposes a systematic
agenda for future research.
Findings of Study 1
Title: Internet of Things Business Model Innovation and the Stage-Gate process: An
Exploratory Analysis
Core research question: What are the main gates currently applied in IoT business model
innovation? What criteria are applied to making decisions at each gate?
Core contribution: Identification of key decisions and decision criteria in business model
innovations
The first Study dealt with multiple case studies of IoT business model innovation
projects to provide insight on how decisions were made from a retrospective position.
The Study thereby takes a theoretical lens of “gates” as major kill/go decisions based
on Cooper’s (2008) stage-gate process. In the context of the 13 cases of corporations
from the technology sector, SMEs and consultancies from Europe, the Study found
that a large variety of decisions with different importance, sequences and timings
are present within IoT BMI projects. However, a generalized finding is that there are
two major decisions that can be observed as recurring across all cases investigated:
first, whether or not to continue to elaborate on a business model idea with a proof-
of-concept prototype. The decision points of a management or investment board
are contingent upon clear storytelling of the project lead. The argumentation for a
kill/go decision is primarily comprised of analytical ex-ante considerations on the
business model’s viability. The second decision is whether or not to scale the validated
business model design in at least one submarket. The project lead has the opportunity
to iteratively test and redesign the business model with customer interaction based on
prototype, i.e. the decision is based on discovery-driven evaluation. In the subsequent
project phase after the second decision, the business model is rolled out, meaning
that evaluation is possible through descriptive, quantitative means. Key performance
indicators hold substantial significance for evaluation. In sum, the first Study found
that the occurrence of the two identified gates as major kill/go decisions depicts
a “least common denominator” for innovation and development of different IoT
business models in general.
Despite these findings, the Study emphasized the importance of continuous,
hypothesis-based evaluation of the business model design throughout the innova-
tion process. Thereby, different types of evaluation depict a dominant logic for the
use of tools and methodologies for the two identified decision points.
Findings and Results 235
Findings of Study 2
Title: The Evaluation Aspect of Digital Business Model Innovation: A Literature Review on
Tools and Methodologies
Core research question: What is the status quo of research in business model evaluation and
corresponding tools? What roles do evaluation tools and methodologies generally play in digital
business model innovation?
Core contribution: Overview and categorization of existing tools and methodologies for digital
business model innovation to develop a typology. Proposition of an integrative framework to
evaluate business models in the era of the Internet of Things
The second Study contributes to a systematized understanding of business model

innovation in the era of the Internet of Things (IoT) with a holistic literature review
on the use of existing tools and methodologies for the evaluation aspect. A multitude
of research papers were investigated aiming to identify key evaluation logics. First,
as Sarasavathy (2001) suggests, the Study distinguishes between causal evaluation
tools—meaning to be able to use analytical means—and effectual tools to iteratively
learn from customer interaction with a prototype. Second, qualitative tools—such as
frameworks and taxonomies—and quantitative tools—such as conjoint-based cus-
tomer surveys—have different prerequisites upon the unit of analysis and differ in
impact. Hence, based on evidence from observing the role of existing and acknowl-
edged tools for digital business model innovation, Study 2 elaborates on different
dominant modes of evaluation in different phases of a BMI process.
In conclusion, the findings of Study 1 and 2 in Part II may be extrapolated to
an integrative framework of how to pursue business model innovation in the IoT
era. Table 1 gives an overview on the synthesized understanding as it describes
three dominant phases: before the decision 1, in between decision 1 and 2, and after
decision 2.
The elaborated framework sheds light upon three different phases in which differ-
ent aspects of the business model predominantly impact the usefulness of different
categories of tools. Overall, the findings emphasize the importance of an ongoing
evaluation paradigm throughout the whole process of business model innovation in
the era of the Internet of Things. Both learnings from the case studies (Study 1) and
the reviewed literature (Study 2) implore project managers to question hypotheses
and assumptions that act as main drivers of the business model’s viability as a whole.
The ongoing application of tools and methodologies accompanying the BMI pro-
cess reveal further information that contribute to the appraisal of components and
contribute to the assessment of potential risks of the BM design. The utility and
effectiveness of the tools and methodologies differ according to the dominant mode
of evaluation of the identified phases. In that sense, the proposed framework is a
solid foundation to interpret the roles that new tools and methodologies play in IoT
business model innovation. In sum, the findings of Part II are in accordance the theory
of Casadesus-Masanell and Ricart (2010), who emphasize business models to be the
result of strategic choices in an innovation process. A more detailed explanation and
impacts of the framework follows in Chap. IV.2.2.
236 J. F. Tesch
Table 1 Integrated findings of Study 1 and 2: framework to innovate business models in the era of
the internet of things (IoT)
Before decision 1 Between decision 1 After decision 2
and 2
Name Ideation and Validation phase Scaling phase
preparation phase
Explanation Ideation of concepts Validation and Implementation of
for a novel business continuous processes, resources
model de-sign. improvement of a and activities of the
Preparation of pre-defined businessprojected business
customer centric model prototype in an
model within the
testing with analytic MVP state firm’s organization;
partners and
The role of evaluation Ex-ante, qualitative Trial-and-error based Evaluation of single
tools and analytical evaluation evaluation learning components of the
methodologies of alternative business from test-customer concrete business
model designs to inter-action to identify model (e.g. revenue
elaborate a set of the most promising model: pay-per-use
strategic choices business model design vs. subscription) for
for a market rollout the consistent setup of
business model tactics
Dominant mode of Analytical evaluation Prototypal (effectual) Quantitative
evaluation based on causal evaluation logic evaluation logic
qualitative logic
Selected tools and SWOT-analysis Learning from Balanced scorecards
methodologies PESTEL analogies through BM and metrics
majorly impacting Taxonomies and patterns Scenario planning
decision-making morphological boxes Business Model Decision support
Expert interviews Patterns systems
Levers for strategic Experimentation Market simulations,
business model Trial and error predictions and
innovation Minimum viable forecasting
product approach Technology
forecasting
Customer surveys
Financial spreadsheets
Decision support
systems
Result of the phase Selection of a set of Strategic choice of a Viable business model
concrete business concrete, sufficiently in at least one
model archetypes (e.g. risk-and-return submarket
multi-sided-platform) evaluated archetypal
to be further business model design
elaborated through an for a market rollout
MVP
Note Italic font marks tools investigated in depth in Part III
2 The Role of Tools and Methodologies in IoT Business

Model Innovation
Part III investigates on the role of the diverse evaluation tools and methodolo-
gies within the process phases of IoT business model innovation. The integrative
framework discussed in Part II was used to structure the field of existing knowl-
edge, as existing tools and methodologies partially stemmed from former economic
paradigms, and thus their use, effectiveness, quality of outcomes, and applicability is
questioned. Study 2 outlined several avenues for further research on tooling, corre-
sponding to the qualitative, quantitative, effectual and causal categories of evaluation
tools. Part III investigates a representative tool for the dominant evaluation logic of
each phase (see Table 1) to elaborate implications for each category.
2.1 Effectual Logic
Chapter III.1 investigates the role of learning from analogies as example of effectual
evaluation.
Findings of Study 3
Title: The Business Model Pattern Database: A Tool for Systematic Business Model Innovation
Core research question: What are recurring archetypes of successful business model
innovations?
What implications can be drawn from analogies for systematic business model innovations?
Core contribution: Elaboration of the first structured, holistic database of business model
patterns as a tool for systematic business model innovation
Study 3 portrays so-called business model patterns as an efficient option to learn

from existing solutions. As the various understandings of the business model pattern
concept were often confusing and contradictory, the use of patterns as a means
of drawing from analogies has not yet revealed its full potential in business model
innovation processes. An exhaustive literature search is undergone to review existing
studies that identify patterns, e.g., by case study research. Next, potential duplicates of
identified patterns are filtered. Furthermore, the patterns are structured corresponding
to the components perspective of business models (see Chap. I.2.1.2) by applying a
rigorous taxonomy-building approach. The resulting business model pattern database
serves as a navigator to browse all identified patterns of successful business model
innovations in the past. As a tool, the comparison with a pattern of a past BMI can
be considered in effect with the ongoing evaluation of hypotheses. In sum, learning
from such analogies can be used as a tool for systematic business model innovation,
which is explained with an illustrative case study for each of the BMI process phases.
238 J. F. Tesch
Findings of Study 4
Title: A Business Model Perspective on Innovation Susceptibility: Business Model Innovation
Levers as a Tool for Systematic Ideation
Core research question: How can ‘innovation susceptibility’ be identified to trigger the
transformation of business models for incumbents?
Core contribution: Provision of a strategic-choice view on business model patterns and
development of a tool for systematic ideation in business model innovation
In order to discover the role of drawing analogies before decision 1, Study 4 ana-
lyzes the use of patterns as operationalization of so-called “business model innovation
levers”. The paper thereby proposes an approach allowing for a better identification
and interpretation of innovation potential as concrete business opportunities. Method-
ologically, the paper draws evidence from 27 case studies and from the unicorn com-
pany database of CB Insights (n 185), a collection of digital (IoT-) business model
innovations with a proven business success. Based on an Action Design Research
(ADR) approach, a viable tool was created through iterative testing and learnings
within the practical use at the partner company. The proposed tool was applied and
validated in a number of industrial projects and its use is illustrated with a simplified
case study. In sum, Study 4 poses a proposition how drawing from analogies might
be used to identify and qualitatively evaluate strategic choice options in an analytical
phase.
Findings of Study 5
Title: Profit Driving Patterns for Digital Business Models
Core research question: Which business model patterns directly drive the profitability of firms?
Core contribution: Categorization of relevant patterns and criteria for their application
Study 5 considers the application of business model patterns in the scaling phase
after the second decision of IoT business model innovations. The Study provides
concrete guidance in terms of identifying and applying patterns that drive profit for
a business model under development. First, the database of Study 3 was considered
(182 patterns), out of these, 21 IoT-relevant business model patterns were selected
based on the findings of Fleisch et al. (2015). With the taxonomy, nine patterns
with a direct impact on a business model’s profitability were selected. Based on an
extensive multiple case study research at the partner company, representative IoT
business model initiatives in a scaling phase (after decision 2) were investigated
in detail. Thereby, aspects to consider when choosing profit driving patterns are
derived, as well as influencing factors, levers and prerequisites that provide guidance
for the choice of profit driving patterns in a future. In sum, the findings indicate how
business model patterns as means of drawing analogies may contribute tremendously
to evaluate tactics (Casadesus-Masanell and Ricart 2010) for the implementation of
a projected business model.
2.2 Quantitative Logic
Chapter III.2 investigates the use of quantitative evaluation tools within the endeavor
to innovate business models in the economic paradigm of the Internet of Things
(IoT).
Findings of Study 6
Title: Customer Surveys as Evaluation Tool for Digital Business Model Innovation
Core research question: What is the potential role of customer surveys in IoT business model
innovation?
Core contribution: Methodological approach to incorporate conjoint analysis in IoT business
model innovation and insights from a smart home case
Study 6 examines the use of quantitative customer surveys and explores their
role with a single case study of a company from the technology sector. Thereby, a
methodological approach to incorporate conjoint analysis—exemplary to quantita-
tive evaluation tools—is elaborated. Within the single case study, the methodological
approach is applied to elaborate and evaluate strategic-choice options before decision
1 of a digital BMI project. As a contribution to research, the paper shows that in the
era of the Internet of Things (IoT), quantitative evaluation tools have an enormous
impact on the development of a superior business model as a competitive advantage.
In particular, other than existing approaches, the Study applies quantitative means in
the strategic stage corresponding to Casadesus-Masanell and Ricart’s (2010) under-
standing, where insights on the use of such tools are scarce. It is shown that earlier
methodologies of applying such quantitative means must be adapted according to
such earlier phases. Furthermore, the paper proposes a design of how to meet the
new requirements corresponding to the economic paradigm of the IoT.
2.3 Causal Logic
Chapter III.3 investigates on the role of combined quantitative and qualitative means
of causal evaluation. Thereby scenario planning is taken as a representative tool.
The aim of Study 7 is to contribute by validating whether methodologies from
strategy, such as scenario planning, are an appropriate means for evaluating business
models in the explicit context of IoT business model innovation. Following a Design
Science Research (DSR) approach, an approach to implement scenario planning
into a BMI process is developed, respective of the necessary features derived from
different phases of the framework. In cooperation with business innovation employ-
ees of the partner corporation, the methodology is applied to real-world innovation
projects in practice. Its viability is validated with an Action Design Research (ADR)
approach, which also allowed for determining how and to what extent it can be used.
240 J. F. Tesch
As a further result, it is scientifically explored how causal tools affect the creation of
competitive strategic advantages in the context of digitalization and the IoT.
Table 2 Integrated findings: the roles of BM evaluation methodologies in the era of the IoT
Analytical phase Validation phase Scaling phase
Effectual means Effectual tools may Effectual Effectual means may
accompany BMI as a methodologies have help to evaluate tactics
“living document” for highest impact in a dealing with
the ongoing validation phase as subcomponents of the
evaluation (Study 2) iteratively learn from business model by
In an analytical phase, the customer about the drawing analogies
ideas triggering BMI viability of the overall from successful
are evaluated through, BM design (Study 2) business model
e.g., drawing from innovations from the
analogies (Study 4) past (Study 5)
Quantitative means Quantitative models Quantitative tools are Quantitative models
may be used to very difficult to apply serve for the explicit
elaborate and in a validation phase elaboration and
pre-evaluate a set of due to complexity of evaluation of tactical
business model IoT business models choices of BM
designs as (Study 2) aspects, such as
strategic-choices, but, revenue models or
however, have lower pricing (Study 2, 6)
explanatory power
than in later phases
(Study 6)
Causal means Qualitative causal Qualitative data may Complex causal
tools are identified as be collected to support models, such as
bearing the highest the validation of market simulations,
impact and most assumptions made in predictions and
importance to the former phase forecasting, help to
analytically ex-ante (Study 1) strengthen the
evaluate a projected A combination of elaboration of options
business model design qualitative and for certain tactics and
(Study 2) quantitative tools has give recommendations
Causal tools help to been proven to bear for corresponding
raise critical highest potential to choices (Study 2)
assumptions and increase transparency
hypotheses towards on assumptions and
the yet unclear thus reduce risks by
viability of the “stress-testing” the
business model (Study business model (Study
6) 6)
Findings of Study 7
Title: Discovering the Role of Scenario Planning as an Evaluation Methodology for Business
Models in the Era of the Internet of Things (IoT)
Core research question: What is the potential role of scenario planning in IoT business model
innovation?
Core contribution: Methodological approach to incorporate scenario planning in IoT business
model innovation and insights from a smart home case
2.4 Synthesis
In sum, Part III has systematically investigated the role of tools and methodologies
stemming from the identified modes of evaluation logics throughout the innovation
process of IoT business models. A summary of the findings can be found in Table 2.
References
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Laudien, S. M., & Daxböck, B. (2016a). Business model innovation processes of average market
Implications—An Integrative
Framework for IoT Business Model
Innovation
Jan F. Tesch
Keywords Internet of Things · Innovation Framework

Business Model Innovation · Business Model · IoT
This chapter discusses the main implications of the book for all relevant stakehold-
ers. First, theoretical implications for the three research disciplines are outlined,
which is followed by implications for practitioners in the field of IoT business model
innovation.
1 Theoretical Contributions
In the sense of cumulative research knowledge (Wade and Hulland 2004), theories
on business model innovation were refined by regarding the impacts of the novel
paradigm of the Internet of Things (IoT). Also, advancements in the methodologi-
cal knowledge can be argued—especially Action Design Research (ADR)—has been
proven as a valid methodology for the creation of novel tools. The theoretical insights
presented within this dissertation extend the knowledge of the three disciplines of
Information Systems (IS), Strategic Management (SM), and Technology and Inno-
vation Management (TIM) (Zott et al. 2011). An overview of the major research
contribution to the disciplines are given in Table 1.
To Information Systems (IS), the anticipated research contribution of the disser-
tation book was to uncover new gestalts of emerging IoT-based business models
and to uncover typologies of prevailing patterns within IoT-based business models.
J. F. Tesch (B)

244 J. F. Tesch
Table 1 Overview of major contributions to research

Part Information systems Strategic Innovation
management management
II Description of novel Identification of major Elaboration of an
gestalts of business decisions within IoT integrative framework
models within the era business model comprising stages and
of the IoT: ecosystems innovation projects gates of business
of interplaying Formalization of model innovation in
partners comprise at strategic and tactics the IoT era
least one business stages within phases Structured review of
model as an of business model existing tools and
orchestrating platform evaluation within IoT methodologies to
with a hybrid value innovation projects foster the evaluation
proposition of a aspect
physical function and
a digital service
III Proposition of the first Proposition of novel Proposition of how to
database on prevailing tools and use business model
patterns within methodologies to patterns as means of
business models identify business evaluation (effectual
Elaboration of a opportunities to logic)
taxonomy strategically trigger Concrete
differentiating digital the exploitation methodological
and non-digital related market inefficiencies approach to apply
patterns through IoT quantitative surveys to
Extension of the technology an analytical phase
understanding of Elaboration of (quantitative logic)
prerequisites and “Innovation-Lever” Concrete
features of applied describing sources of methodological
patterns within competitive approach to apply
IoT-projects advantages as sources scenario planning
of strategic choice (causal logic)
options
Within Part II, 13 cases of innovation projects subject of the IoT paradigm revealed
prevailing, emerging gestalts of successful business models. Also corresponding to
the suggestions of Gawer and Cusumano (2015), an ecosystem of different play-
ers within the IoT, such as end-customers, data-customers, suppliers or insurances,
always stand in relation with an orchestrating business platform. Furthermore, this
platform has a hybrid offering towards end-customers, i.e. a physical function with
the offered product, and corresponding digital services. The implications thus con-
firm and extend the suggestions of Fleisch et al. (2014b). As part of Study 6 and 7,
Part III reveals the emergence of a multi-sided business platform in the smart home
domain as a new gestalt of IoT business models. Furthermore, Part III proposes the
first taxonomy of business model patterns, recombining and synthesizing the under-
standing of different foci of investigation, such as e-business models (Clemons 2009;
Eisenmann 2001; Gassmann et al. 2014). The understanding on patterns is extended
by an explicit view on which patterns—i.e. gestalts of IoT business models—drive
Implications—An Integrative Framework for IoT Business Model Innovation 245
profitability depending on circumstances within the ecosystem. In sum, the implica-

tions contribute to the IS community by explaining new forms for business models
within the era of the IoT, and thus provide research guidance, as the book pointed
out several “classes” of IT-enabled business models.
To Strategic Management (SM), the anticipated research contribution of the dis-
sertation book was to provide an understanding of causes and effects of systematic
value creation within the economic paradigm of the IoT. Furthermore, the book antic-
ipated to explain how companies may systematically innovate business models in
order to develop competitive advantages and to capture value thereof. Within Part
II, an integrative framework is proposed that contributes suggestions on how differ-
ent phases of a business model correspond with the theory of business models as a
result of “strategic choices” (Casadesus-Masanell and Ricart 2007, 2010; Casadesus-
Masanell and Zhu 2013). Thereby, the book reviews how tools may systematically
be used in order to base decision making, which in turn leads to business models
as an activity system (Zott and Amit 2010) that is superior in the creation of value
(Amit and Zott 2012) and thus represents a competitive advantage. With the inte-
grative framework, scholars focusing on IoT are increasingly enabled to understand
causes and effects of value creation, understanding the application of recommended
tools and methodologies corresponding to the dominant mode of evaluation in the
respective phase. Part III displays how tools and methodologies help to improve
the consistency of the business model design. It reveals sources of risk caused by
uncertainties of both internal (unrealistic assumptions) and external (PESTE) factors.
The book implies that actual management decisions can be enhanced by increasing
transparency on the risk and return of the innovation project. In sum, the implications
contribute to Strategic Management (SM) by explaining new network- and activity
system-based value creation mechanisms and sources of competitive advantage.
For Technology and Innovation Management, the anticipated research contribu-
tion of the dissertation book was to provide insight on how BM tools and method-
ologies may help to convert new technologies into differentiating competitive advan-
tages (Zott et al. 2011). Within Part II, as aforementioned, an integrative framework
was proposed, which corresponds to the identified influences of the IoT on business
models (Arnold et al. 2016; Laudien and Daxböck 2016b). This contributes to an
increased understanding when reviewing the use and effectiveness of tools within the
IoT-paradigm. Within Part III, the book contributes by the creation and validation of
tools and methodologies to evaluate business models. Corresponding to the empha-
sized importance of effectual means (Ries 2011; Bilgeri et al. 2015; Fleisch et al.
2014a, b; Sosna et al. 2010), business model patterns were investigated in greater
detail. Furthermore, the book has outlined a concrete methodological approach to
incorporate conjoint analysis to IoT business model innovations. Lastly, it was con-
firmed that causal means of evaluation—i.e. scenario planning—bears tremendous
potential throughout the entire process of IoT business model innovation. In sum, the
investigation on tools, methodologies, their systematic use and corresponding effec-
tiveness within IoT-projects tremendously contributes to an enhanced understanding
on how technology can be converted into market success.
246 J. F. Tesch
2 An Integrative Framework for IoT Business Model

Innovation
As of yet, knowledge upon the systematic innovation of business models is still

scarce in existing literature (Wirtz et al., 2016). Despite that, Osterwalder et al.’s
(2010) contribution to practice certainly considers several aspects of digital business
models and had a tremendous impact on the way practitioners interpret, design and
evaluate business models. However, the framework provides only limited guidance
on IoT projects. Generally, existing publications are based on rather anecdotal evi-
dence (Frankenberger et al. 2013). In this sense, the findings of the seven research
papers contribute to a practitioner’s understanding on a phase-based framework for
business model innovation in the era of the Internet of Things. The framework is
supported by the implications from the investigations on the role of supporting tools
and methodologies within the phases, and the roles of stakeholders involved within
such an innovation project. An overview of the integrative practitioner framework is
given in Fig. 1.
The initiation of the IoT business model innovation project may be triggered by
several factors: first, strategic considerations, e.g. stemming from portfolio man-
agement, may imply the need for strategically addressing a new market through an
innovative business model. An example is reflected with the smart home case in
Studies 6 and 7. Hereby, there was no underlying IoT technology such as middle-
ware at hand, however, the presence of the focal company in the home appliances
industries implied that future competitive advantages lie in interactions between the
manufactured devices. In this case, the main task of BMI professionals is to evalu-
ate what key activity or what key resource might serve as a differentiating factor in
the future. This corresponds to the understanding of the activities based perspective
(Amit and Zott 2010, 2012). Second, another initiation path of a business model
innovation endeavor is in technology advancements, i.e. the R&D-department of a
company finds and patents a certain artifact that might provide a competitive advan-
Fig. 1 The integrated framework for IoT business model innovation

tage for a future business model. In this case, the task of BMI professionals is to
find the optimal method for creating and capturing value for the focal firm, which
corresponds to the perspective of Chesbrough (2010). Third, market pull serves as a
trigger to innovate the business model. For example, a yet unexplored market indi-
cates substantial demand on a certain value proposition. Corporate strategy identifies
such a potential and initiates the development of a locally adapted business model.
The task of business model professionals is then to segment the new market and to
find adequate, locally adapted value propositions. Fourth, changes in the ecosystem
of the business model may be a further initiator, as external PESTE-factors driv-
ing the viability of current business models are subject to change (Markides and
Sosa 2013; Johnson et al. 2008). In sum, such considerations usually originate in a
corporate strategy department, where professionals systematically screen business
opportunities for several business units. Practitioners of the respective departments
are provided with several tools for the IoT-paradigm, such as the “Innovation Levers”
(Study 4) to systematically identify opportunities or threats. Causal, analytical tools
from strategic management (Study 2 and 7) thereby help to indicate the necessity to
innovate existing or new business models.
Despite the different sources triggering the initiation, the integrative framework
provides business model innovation professionals with a templated phase model
of how to achieve the goal of finding a viable business model as a goal set out
by strategic management (Fig. 1). As the integrative framework is based on the
identification of the occurrence of two major decision points throughout all IoT
business model innovation projects (Study 1), it argues to be valid irrespective of
potential path dependencies (initiators of the process), and to be seen as a “least
common denominator” of decision points across all investigated business model
innovations. Table 2 points out the implications of the book towards business model
professionals in innovation projects within the paradigm of the Internet of Things
(IoT).
Above all, the findings of Part II emphasize that—compared to former economic
paradigms and to ordinary product development—BMI in the era of the Internet of
Things requires a highly dynamic course of action. This means that within the 3
identified phases, no template procedure has been proven to be transferable from
project to project. Hence, the general role of BMI professionals in a corporation is
to support project teams in guiding towards the two identified decision points based
on experiences from past BMI projects. BMI professionals help structuring the key
aspects of a business model and to set these in relation to each other, i.e. partic-
ularly helping to form a holistic overview of the intended business model design.
Towards a decision board, this helps to reveal potential shortcomings and critical
factors. Evidence from both Parts II and III emphasizes the importance of an ongo-
ing use and re-iteration of the portrayed evaluation tools and methodologies. Hence,
in the beginning of a BMI process, it has been proven to be most beneficial to start
with raising hypotheses and assumptions that act as main drivers of the business
model’s viability. This helps to estimate the probability of market success already in
an early (analytical) phase and thus increases transparency for decision makers. In
later phases, the ongoing validation or falsification of hypotheses and assumptions
248 J. F. Tesch
Table 2 Features of the phases of the integrative IoT business model innovation framework
Analytical phase Prototyping phase Scaling phase
Operating questions What is the ideal Which business model What tactics should be
archetypal design for setup addresses? employed with the
the business model? Who are ideal partner? business model to
Is there a market for a Does the customer maximize profit?
certain value accept the value What is the best price
proposition? proposition? to B2B and B2C
Is there a potential What is the customer’s customers?
source of a willingness-to-pay at In what order should
competitive advantage the point-of-sales? markets be entered?
as a differentiator to
potential
competitors’?
Supporting tools and SWOT-analysis Learning from Balanced scorecards
methodologies with PESTEL analogies through BM and metrics
the highest impact in Taxonomies and patterns Scenario planning
the corresponding morphological boxes Business Model Decision support
phase Expert interviews Patterns systems
Levers for strategic Experimentation Market simulations,
business model Trial and error predictions and
innovation Minimum viable forecasting
product approach Technology
Roadmapping forecasting
Customer surveys
Financial spreadsheets
Decision support
systems
Management decision Qualitative Proved technical Financial viability of
base explanation of feasibility and the business model in
potential customer’s acceptance at least a submarket to
differentiating factorsand decide on further
and first, high-level willingness-to-pay at scaling to further
profit-and-loss projected point of markets
calculations sales.
Total-costs estimation
of the projected
business model in a
rolled-out-state
The role of BMI Market research and Design MVP and Consult in
professionals industry expert secure its soundness quantitatively
interviews for customer-centric measuring the
Structure ideas and evaluation of value performance of the
thoughts to an overall creation aspects business model while
design Evaluate strategic scaling to overall
Evaluate archetypal options for market success
business model design commercialization Identify and evaluate
Elaborate and potential tactical
stress-test a business options to enhance the
model implementation business mode’s
roadmap viability
by means of rather effectual tools and methodologies accompanying the BMI pro-
cess reveal further information. Hence, this contributes to a constantly improving
understanding of the general viability of the BM design and thus lowers potential
risks. The impact of the tools’ and methodologies’ contribution differs according to
the dominant mode of evaluation of the identified phases of the BMI project. In sum,
the integrative framework, as outlined in Fig. 1, guides practitioners to structure the
process, gives hints on essential operating questions and enables them to navigate
through the wealth of tools as identified by the book (Study 2). The general role of
BMI professionals is to provide IoT projects with knowledge using such tools in the
immediate context of a project.
Finally, the implemented and viable business model needs to be anchored within
the focal company’s operations, which, in the era of the Internet of Things (IoT), is
primarily the corporate IT department. The findings help BMI professionals to detect
early key (IT-) resources and activities that are influencing performance of the devel-
oped business model. Hence, practitioners from corporate IT profit from the identifi-
cation of the prevailing gestalts within the IoT era (see Theoretical Background and
Study 6 and 7), which allows for the early setup of recurring IT-architectures that
emerge vital for a multitude of projected IoT business models within the focal com-
pany. This, in turn, enables corporate IT-departments and business units to streamline
processes and capabilities in order to foster further efficiency of the implemented
business model (Demil and Lecocq 2010).
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Concluding Remarks
Jan F. Tesch
Keywords Business model innovation · Internet of things · IoT · Digitalization
The elaborated integrative framework has given an overview of the various aspects
of IoT business model innovation, support for decision-making, and created a set of
new tools and methodologies for evaluation. First, a multiple case Study comprising
13 cases and 27 interviews analyzed stereotypical IoT business model innovation
projects across several industries. This led to a theorization of decisions and deci-
sion criteria within business model innovation in the era of the Internet of Things.
A rigorous literature review of 104 scientific papers based the considerations on the
use and effectiveness of tools and methodologies. This resulted in the categorization
into qualitative, quantitative, effectual and causal means of evaluation. The synthe-
sized findings then led to the elaboration of the integrative framework, i.e. a 3-phase
innovation process, which helps to further conceptualize the aspects of evaluation in
IoT business model innovation. In that sense, this research largely contributed to the
field of “what determines the process and elements of business model innovation in
specific contexts” (Schneider and Spieth 2013, p. 23).
The conceptualization of evaluation tools and methodologies is treated with the
process developed in Part III. First, the effectual logic is investigated by reviewing
22 original sources of business model patterns. With the elaboration of a harmo-
nized, structured and categorized database of patterns (Study 3), the appliance is
then explored within the different phases (Study 4 and 5). Thereby, the conceptu-
alization is based on an Action Design Research approach (analytical phase) and
a multiple case-study (scaling phase). Second, quantitative tools, previously only
used in an analytical phase, are also conceptualized as a valid means of evaluation
J. F. Tesch (B)

252 J. F. Tesch
in previous phases with a single case Study of an IoT-project, where a test set of
conjoint surveys (n 250) were confirmed as having substantial impact on decision
quality (Study 6). Third, the role of scenario planning as a proxy of the causal logic is
iteratively tested and validated with Action Design Research (Study 7). In that sense,
this book largely contributed to the research field of how “firms [can] be supported
in conducting business model innovation in terms of tool and methods” (Schneider
and Spieth 2013, p. 23).
1 Limitations
This book is understood to be a leap into the understanding of business model inno-
vation in the era of the Internet of Things (IoT). While it provides important advances
to both theory and practice, there are also limitations to be considered by scholars
and business model innovation practitioners. Hence, it is emphasized that the result-
ing recommendations should be interpreted with caution and subject to the overall
project or research setting.
The resulting integrative framework and the elaborated tools and methodologies
of the book need to be assessed in the light of methodological limitations. First, as the
fundamental base of the identification of two recurring decision points, the frame-
work’s main limitation is the generality of qualitative case-study based research (Yin
1989). Also, more specifically, the research results are limited by the selection of case
studies and the respective interview partners (Wynn and Williams 2012). In terms
of Study 1, a comparatively large sample size of 27 experienced professionals from
eight multinational organizations across the IoT ecosystem were selected based on a
set of predefined criteria. Nevertheless, further studies should be conducted covering
other types of companies as well as additional industries. In other words, future work
in different empirical settings will be necessary to further improve the validity of the
research (Desyllas and Sako 2013). Furthermore, also corresponding to the results
of Study 5 and 6, the case studies investigated a certain point in time of the business
model innovation project, where often the full clarification of the overall financial via-
bility was not given. However, all projects were at least in a scaling phase at the end of
the observation period. Nevertheless, longitudinal studies would help further research
to strengthen the consistency of the case-study findings. Second, the keyword-search
on evaluation tools and methodologies only includes results that were rated B or
better in the initial step of Webster and Watson’s (2002) methodology. However, this
constraint was adjusted in the forward-/backward step to also consider lower-ranked
scientific outlets and contributions to a practitioner’s audience. Nonetheless, as the
terminology of business model innovation is relatively new and thus many impactful
new tools and methodologies are not considered by prevailing scientific ratings of
outlets, it is possible that valuable sources have not been considered. Third, the cate-
gorization or structuring through taxonomies within the several studies of this book
may also be seen in light of limitations. Taxonomies cannot be universally perfect,
but are a useful leap to solve a specific problem (Nickerson et al. 2013, p. 341). This
Concluding Remarks 253
stems from the fact that the mapping of each item in the taxonomy dimensions might
be biased due to the subjective interpretations of the authors of the respective studies.
Nonetheless, several cross-checks were performed and the classification was widely
discussed with the co-authors. Fourth, Design Science Research (DSR) (Hevner et al.
2004) was chosen to create tools for the specific prerequisites stemming from the
economic paradigm of the Internet of Things. Thereby, the guidelines of Gregor and
Hevner (2013) were applied to secure generalizability. As the author was an active
part of the development, Iivari and Venable (2009) suggested the systematic use of
the corresponding Action Design Research (ADR) theme (Sein et al. 2011). This
iterative research methodology allows for the ongoing development and demonstra-
tion of the artifacts. However, shortcomings are that its validation is highly based
on the subjective impressions of the involved stakeholders. To counteract this, the
artifacts were tested in a variety of projects and settings. Nonetheless, the validity
and impact of the tools only may be ultimately proven if retrospectively analyzed
with case Study research methodologies after the projects achieved tangible business
success.
Next to the methodological limitations, the choice of the unit of analysis might
bear threats to the generality of the findings. Study 1 investigated innovation projects
dealing with innovating an existing or novel business model subject to influences
stemming from the paradigm of the IoT. Thereby, the unit of analysis comprised
both the central business platform orchestrating several players in an IoT ecosystem
and complementary business models of a rather ordinary archetypal logic. Hence,
despite the fact that all investigated cases somehow dealt with the IoT paradigm,
the generality of findings is limited to the two major identified decision points.
Second, Study 2 reviewed literature on tools and methodologies in business model
innovation which does not necessarily consider the IoT paradigm. As the foci of
the original sources was rather general, their usefulness and effectiveness within the
IoT-paradigm is to be considered with caution. Third, the tools and methodologies
created were validated within a single holding company from the technology sector.
However, despite the fact that the tools were deployed in several business units and
industries, the behavioral observation of their use only reflects the circumstances
of large corporations. Lastly, the dissertation provides evidence for only one means
for each category of evaluation. To secure confirmatory, further research on the
applications of other tools of the same evaluation logic are to be reviewed. To further
strengthen the implications, this has also to be undergone in different markets or
industries (or both). Furthermore, the book has not reviewed the use and effectiveness
of several tools in combination.
In sum, a general limitation is that all evidence and data, except for Study 2 and
3, was collected from projects and companies from German-speaking countries. As
empirical research usually strives for generalizations based on causal explanations,
specific features of unique contexts might have been discarded along the way. The
implications thus have focus on large corporations from Europe, and should be con-
sidered with caution when aiming to apply in an entrepreneurial context and/or other
cultural settings.
254 J. F. Tesch
2 Avenues for Future Research
While the above reasons might limit the transferability and generalizability, the over-
all book also lays fruitful ground for future research. This section discusses avenues
for future research and proposes concrete opportunities for scholars in the field of
the IoT business model innovation.
The proposed integrative framework opens a new perspective upon the evaluation
aspect within procedures to innovate business models. As such, the framework pro-
vides the groundwork to derive a multitude of avenues for future research on tools
and methodologies (also see Study 2 for more details): first, future research may
critically review the actual use of the identified tools and methodologies within the
proposed phase of the dominant logic. Particularly the extent to which the tools actu-
ally contribute to the corresponding decision base could help to further clarify their
effectiveness and thus provides valuable information for the further enhancement of
the tools. Second, despite the suggested positioning of tools within the integrative
framework, if and how tools and methodologies may also be used in other phases also
depicts a fruitful research avenue. As paper 6 has shown, this may enhance manage-
rial decisions and thus help to better reveal promising projects. Third, another option
is to combine multiple tools and methodologies. Thereby, opportunities lie at the
intersection of the identified logics of business model logics. E.g., the shortcomings
of purely qualitative tools and methodologies are potential biases caused by a sub-
jective perspective of the evaluator (Osterwalder and Pigneur 2013). As an example
opportunity for future research, e.g., Ali (2015) has shown how to advance the value
of qualitative tools with quantitative means. In terms of the concrete findings, a con-
crete conceptualization of Ali’s (2015) idea was outlined by Haaker et al. (2017), who
considered the scenario planning approach from Study 7 (Tesch 2016), delivering
qualitative and quantitative criteria including financial aspects for a what-if perspec-
tive. Haaker et al. (2017), who cited Study 7 and built upon the findings, showed
how to use the full potential of scenarios to evaluate the business model by means of
stress-testing. A further idea would be to then combine the tooling with roadmapping
(Reuver et al. 2013). Forth, drawing analogies from past business model innovations
depicts a further fruitful ground, e.g. operationalized by subsequent research on busi-
ness model patterns (Gassmann et al. 2014; Abdelkafi et al. 2013; Amshoff et al.
2015). Despite the findings of Study 4 and 5, further understanding on prerequisites,
conditions and success factors for the use of patterns in practice helps to strengthen
the ability to understand and lead IoT business model innovation. More specifically,
research on which pattern is suitable in the BMI project’s current situation, bears
immense potential. Fifth, also recurring risks within business models and specific
business model types can be identified, analyzed and considered in decision-making.
An explicit investigation on strategic foresight and prediction methodologies may
help to reduce reservations by counteracting uncertain assumptions on estimated
returns.
Future research also lies in the field of further contributing to a theorized under-
standing of decisions and decision criteria as outlined by Schneider and Spieth (2013).
Concluding Remarks 255
First, a concrete suggestion is to employ longitudinal multiple case studies. As the the-
oretical and managerial implications outlined 4 triggers for initiation, such a research
endeavor may consider different origins of the BMI project as a starting point for
further theorization of different IoT business model innovation paths. Observing the
progress of projects with the theoretical lens of the two major decisions of the inte-
grative framework may reveal theorized mutualities and differences respective of
potential path dependencies of IoT business model innovation phases. Further, this
could reveal the occurrence of recurring (sub-) decisions within the identified busi-
ness model innovation paths and thus lays further ground for the conceptualization of
different innovation paths. In that sense, the integrative framework profits through a
strengthened overall basis for decision making in BMI processes. This, in turn, leads
to a further enhanced understanding on the ideal application of tools and methodolo-
gies. A second opportunity is using the identified business model patterns of Study
3 to code the investigated business models of a multiple case Study. Explaining how
the design of the BM changes throughout passing the process steps over the time
bears humongous potential to contribute to an enhanced understanding on “how […]
distinct forms of business model innovation impact on the underlying process”, as
outlined by Schneider and Spieth (2013), p. 23. Finally, the aspects of portfolio and
risk management are further fruitful fields adjacent to this book’s research on IoT
business model innovation.
References
Ali, A. (2015). An MCDM approach towards M-payment business models evaluation. International
Journal of the Analytic Hierarchy Process, 7(2), 273–294.
de Reuver, M., Bouwman, H., & Haaker, T. (2013). Business model roadmapping: A practical
Desyllas, P., & Sako, M. (2013). Profiting from business model innovation: Evidence from pay-as-
you-drive auto insurance. Research Policy, 42(1), 101–116.
Gregor, S., & Hevner, A. (2013). Positioning and presenting design science research for maximum
impact. Management Information Systems Quarterly, 37(2), 337–355.
Haaker, T., Bouwman, H., Janssen, W., & de Reuver, M. (2017). Business model stress testing: A
practical approach to test the robustness of a business model. Futures, 89, 14–25.
Iivari, J., & Venable, J. R. (2009). Action research and design science research—Seemingly similar
but decisively dissimilar. In ECIS 2009 Proceedings, No. Paper 73.
256 J. F. Tesch
Nickerson, R. C., Varshney, U., & Muntermann, J. (2013). A method for taxonomy development
and its application in information systems. European Journal of Information Systems, 22(3),
336–359.
Osterwalder, A., & Pigneur, Y. (2013). Designing business models and similar strategic objects:
The contribution of IS. Journal of the Association for Information Systems, 14(5), 237.
Tesch, J.F. (2016). Discovering the role of scenario planning as an evaluation methodology for
European Conference on Information Systems (ECIS), Vol. 24, pp. 1–25.
Wynn, D., Jr., & Williams, C. K. (2012). Principles for conducting critical realist case study research
in information systems. MIS Quarterly, 36(3), 787–810.
Yin, R. K. (1989). Research design issues in using the case study method to study management infor-
mation systems. The Information Systems Research Challenge: Qualitative Research Methods,
1, 1–6.
References
Haaker, T., Bouwman, H., Janssen, W., & de Reuver, M. (2017). Business model stress testing: A
practical approach to test the robustness of a business model. Futures, 89, 14–25.
Kley, F., Lerch, C., & Dallinger, D. (2011). New business models for electric cars—A holistic
approach. Energy Policy, 39(6), 3392–3403.
Osterwalder, A., & Pigneur, Y. (2013). Designing business models and similar strategic objects:
The contribution of IS. Journal of the Association for Information Systems, 14(5), 237.
Zott, C., Amit, R., & Massa, L. (2010). The business model: Theoretical roots, recent
developments, and future research, Madrid, Spain.

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Progress in IS

Business Model Innovation

Dissertation Georg-August Universität Göttingen, 2017

ISSN 2196-8705 ISSN 2196-8713 (electronic)

Library of Congress Control Number: 2018955918

© Springer Nature Switzerland AG 2019

Stuttgart, Germany Dr. Johannes Sommerhäuser

The emerging paradigm of the so-called Internet of things (IoT) represents an

Part II Decisions and Evaluation in IoT Business Model Innovation

Scenario Planning as a Causal Evaluation Tool for IoT Business

ADR Action design research

IoT Business Model Innovation and the Stage-Gate Process

The Evaluation Aspect of Digital Business Model Innovation

The Business Model Pattern Database: A Tool for Systematic BMI

Fig. 2 Development of dimensions for the business model

A Business Model Perspective on Innovation Susceptibility

Proﬁt Driving Patterns for Digital Business Models

Customer Surveys as a Quantitative Evaluation Tool for Digital BMI

Scenario Planning as a Causal Evaluation Tool for IoT Business

Fig. 6 Stakeholder network diagram (Bilgeri et al. 2015) for the

Implications—An Integrative Framework for IoT Business

IoT Business Model Innovation and the Stage-Gate Process

The Evaluation Aspect of Digital Business Model Innovation

The Business Model Pattern Database: A Tool for Systematic BMI

Table 5 Reviews of business model pattern literature . . . . . . . . . . . . . . . . 105

A Business Model Perspective on Innovation Susceptibility

Proﬁt Driving Patterns for Digital Business Models

Customer Surveys as a Quantitative Evaluation Tool for Digital BMI

Scenario Planning as a Causal Evaluation Tool for IoT Business

Findings and Results

Implications—An Integrative Framework for IoT Business Model

Part I of this cumulative dissertation comprises two chapters. It begins with an

Keywords Internet of Things · IoT · Business Model · Innovation · Strategy

1 Motivation of the Book

© Springer Nature Switzerland AG 2019 3

In sum, the emergence of the Internet of Things represents a new economic

2 Research Gaps and Research Questions

Within existing research on business model innovation, three previously identi-

means supporting the decision making. An integrative framework to structure the

3 Structure of the Book

The book at hand is written in a cumulative nature to incorporate seven interrelated

Part IV: Contributions

1 Findings and results 2 Implications 3 Concluding Remarks

Fig. 1 Overview of the book structure

Table 1 Overview of studies included in this book

through Study 1, an enhanced understanding on how tools and methodologies are

Table 2 Overview of research design of studies included in this book

Although several researchers have emphasized the importance of BMI in IoT,

Table 3 Overview of anticipated contributions to research

Structured literature reviews from an IS point of view (Burkhart et al. 2011;

Table 4 Overview of anticipated contributions to practice

Keywords Business model · Business model innovation · Digital transformation

This chapter provides an overview of the foundations of the underlying theoretical

The terminology around business models (BM) emerged as buzzwords in various

© Springer Nature Switzerland AG 2019 19

1.2 Perspectives on Business Models

Various research contributions to the phenomenon of business models were often

Table 1 Definitions of the term “business model”

1.2.1 (Value-) Components Perspective

Table 2 Perspectives on business models

Zu Knypehausen-Aufseß and Meinhardt (2002)

Al -Debei and Avison (2010)

Bieger and Reinhold (2011)