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Business model 1

Business model
A business model describes the rationale of how an organization creates, delivers, and captures value[1] - economic,
social, or other forms of value. The process of business model design is part of business strategy.
In theory and practice the term business model is used for a broad range of informal and formal descriptions to
represent core aspects of a business, including purpose, offerings, strategies, infrastructure, organizational structures,
trading practices, and operational processes and policies.
Whenever a business is established, it either explicitly or implicitly employs a particular business model that
describes the design or architecture of the value creation, delivery, and capture mechanisms employed by the
business enterprise. The essence of a business model is that it defines the manner by which the business enterprise
delivers value to customers, entices customers to pay for value, and converts those payments to profit: it thus reflects
management’s hypothesis about what customers want, how they want it, and how an enterprise can organize to best
meet those needs, get paid for doing so, and make a profit[2] . Business models are used to describe and classify
businesses (especially in an entrepreneurial setting), but they are also used by managers inside companies to explore
possibilities for future development, and finally well known business models operate as recipes for creative
managers [3] .

Over the years, business models have become much more sophisticated. The bait and hook business model (also
referred to as the "razor and blades business model" or the "tied products business model") was introduced in the
early 20th century. This involves offering a basic product at a very low cost, often at a loss (the "bait"), then charging
compensatory recurring amounts for refills or associated products or services (the "hook"). Examples include: razor
(bait) and blades (hook); cell phones (bait) and air time (hook); computer printers (bait) and ink cartridge refills
(hook); and cameras (bait) and prints (hook). An interesting variant of this model is a software developer that gives
away its word processor reader free of charge but charges several hundred dollars for its word processor writer.
In the 1950s, new business models came from McDonald's Restaurants and Toyota. In the 1960s, the innovators
were Wal-Mart and Hypermarkets. The 1970s saw new business models from FedEx and Toys R Us; the 1980s from
Blockbuster, Home Depot, Intel, and Dell Computer; the 1990s from Southwest Airlines, Netflix, eBay,, and Starbucks. Poorly thought out business models were a problem with many dot-coms.
Today, the type of business models might depend on how technology is used. For example, entrepreneurs on the
internet have also created entirely new models that depend entirely on existing or emergent technology. Using
technology, businesses can reach a large number of customers with minimal costs.

Examples of Revenue Model

• Auction business model
• Bricks and clicks business model
• Collective business models
• Component business model
• Cutting out the middleman model
• Direct sales model
• Distribution business models, various
• ebocube business model
• Fee in, free out
• Franchise
• Freemium business model
Business model 2

• Industrialization of services business model

• Internet business model [4]
• Low-cost carrier business model
• Loyalty business models
• Monopolistic business model
• Multi-level marketing business model
• Network effects business model
• Online auction business model
• Online content business model
• Premium business model
• Professional open-source model
• Pyramid scheme business model
• Razor and blades business model (bait and hook)
• Servitization of products business model
• Subscription business model
• All-in-one business model

Business model design template

Formal descriptions of the business become the building blocks for its activities. Many different business
conceptualizations exist; Osterwalder's work and thesis (2010[1] , 2004[5] ) propose a single reference model based
on the similarities of a wide range of business model conceptualizations. With his business model design template,
an enterprise can easily describe their business model
• Infrastructure
• Key Activities: The activities necessary to execute a company's business model.
• Key Resources: The resources that are necessary to create value for the customer.
• Partner Network: The business alliances which complement other aspects of the business model.
• Offering
• Value Proposition: The products and services a business offers. Quoting Osterwalder (2004), a value
proposition "is an overall view of .. products and services that together represent value for a specific customer
segment. It describes the way a firm differentiates itself from its competitors and is the reason why customers
buy from a certain firm and not from another."
• Customers
Business model 3

• Customer Segments: The target

audience for a business' products and
• Channels: The means by which a
company delivers products and
services to customers. This includes
the company's marketing and
distribution strategy.
• Customer Relationship: The links a
company establishes between itself
and its different customer segments.
The process of managing customer
relationships is referred to as customer
Business Model Canvas: Nine business model building blocks, Osterwalder,
relationship management. [1]
Pigneur, & al. 2010
• Finances
• Cost Structure: The monetary consequences of the means employed in the business model. A company's DOC.
• Revenue Streams: The way a company makes money through a variety of revenue flows. A company's income.

Malone et al.[6] at MIT find that some business models, as defined by them, indeed performed better than others in a
dataset consisting of the largest U.S. firms, in the period 1998 through 2002, while they did not prove whether the
existence of a business model mattered.

Related concepts
The process of business model design is part of business strategy. The implementation of a company's business
model into organisational structures (e.g. organigrams, workflows, human resources) and systems (e.g. information
technology architecture, production lines) is part of a company's business operations.
It is important to understand that business modeling commonly refers to business process design at the operational
level, whereas business models and business model design refer to defining the business logic of a company at the
strategic level.
The brand is a consequence of and has a symbiotic relationship with the business model since the business model
determines the brand promise and the brand equity becomes a feature of the model. Managing this is a task of
integrated marketing.

See also
• Business model design
• Business plan
• Business process modeling
• Business reference model
• Business rule
• Competitive advantage
• Core competency
• Growth Platforms
• Market forms
• Marketing
Business model 4

• Marketing plan
• Strategic management
• Strategic planning
• Strategy dynamics
• Value migration

Further reading
• 'The Business Model: Theoretical Roots, Recent Developments, and Future Research', C. Zott, R. Amit, &
L.Massa., WP-862, IESE, June, 2010 - revised September 2010 [
• "Special Issue on Business Models" Long Range Planning, vol 43 april 2010, that includes 19 pieces by leading
scholars on the nature of business models
• The Role of the Business Model in capturing value from Innovation: Evidence from XEROX Corporation’s
Technology Spinoff Companies., H. Chesbrough and R. S. Rosenbloom , Boston, Massachusetts, Harvard
Business School, 2002.
• Leading the revolution., G. Hamel, Boston, Harvard Business School Press, 2000.
• Changing Business Models: Surveying the Landscape, J. Linder and S. Cantrell, Accenture Institute for Strategic
Change, 2000.
• Developing Business Models for eBusiness., O. Peterovic and C. Kittl et al., International Conference on
Electronic Commerce 2001, 2001.
• Place to space: Migrating to eBusiness Models., P. Weill and M. R. Vitale, Boston,Harvard Business School
Press, 2001.
• Value-based Requirements Engineering - Exploring Innovative e-Commerce Ideas, J. Gordijn, Amsterdam, Vrije
Universiteit, 2002.
• Internet Business Models and Strategies, A. Afuah and C. Tucci, Boston, McGraw Hill, 2003.
• Focus Theme Articles: Business Models for Content Delivery: An Empirical Analysis of the Newspaper and
Magazine Industry [7], Marc Fetscherin and Gerhard Knolmayer, International Journal on Media Management,
Volume 6, Issue 1 & 2 September 2004 , pages 4 – 11, September 2004.
• Business Model Generation, A. Osterwalder, Yves Pigneur, Alan Smith, and 470 practitioners from 45 countries,
self published, 2009

[1] Business Model Generation (http:/ / www. businessmodelgeneration. com), A. Osterwalder, Yves Pigneur, Alan Smith, and 470 practitioners
from 45 countries, self published, 2010
[2] (David Teece 2010)
[3] (Charles Baden-Fuller and Mary Morgan, 2010)
[4] http:/ / www. goarticles. com/ cgi-bin/ showa. cgi?C=2964497
[5] The Business Model Ontology - A Proposition In A Design Science Approach (http:/ / www. hec. unil. ch/ aosterwa/ PhD/
Osterwalder_PhD_BM_Ontology. pdf)
[6] Do Some Business Models Perform Better than Others? (http:/ / papers. ssrn. com/ sol3/ papers. cfm?abstract_id=920667), Malone et al., May
[7] http:/ / www. informaworld. com/ smpp/ content~content=a785034169
Article Sources and Contributors 5

Article Sources and Contributors

Business model  Source:  Contributors: A8UDI, Adhart81, AdjustShift, Aesshen, Akonga, AndrewHowse, Aosterwalder, Arthena,
Betacommand, Big Brother 1984, Blessingsboy, Bmodel, Bobo192, Bogey97, Bookermorgan, Brim, BusinessAssyst, Businessmodelresearch, Caorongjin, Cdc, Chevymontecarlo, Cmac, Cretog8,
DOCLMassa, DanIzzo, Danlev, David Martland, David gv ray, DavidLevinson, Davidhoo, Daviding, Ddxc, De728631, E1000ien, Ebeatty7, Efe, Ehheh, Erockrph, Ewlyahoocom, Fenice,
Finalius, Frank Warmerdam, Gilliam, Grant Thornton UK, Grumpyyoungman01, Harburg, Helen Peacop, Hephaestos, Honeydew, Howardjp, Isodino, JakeH07, Jamespfarrell, Jaridlukin,
Jayallyson, Jmkim dot com, Johnuniq, Jorunn, Keeswinkel, Kuru, Kuzmo, Kylemew, Lakers, Lamro, LavosBaconsForgotHisPassword, Ldworski, Legionarius, Levineps, Liface, MER-C, MLeb,
Mark Renier, Marketsense, Maurreen, Mav, Maven111, Mboverload, Mdd, Michelle.information, Mikefzhu, Mikehoyles, Mishedmashed, MrOllie, Mrappa, MuffledThud, Mydogategodshat,
Nick, Nickg, Niemeyerstein en, Obamizacion, Opal727, PTSE, Pablo Rodriguez Laurta, Pgreenfinch, PhilJackson, Philip Howard, Qureshi sheraz, Rabiznaz, RadioFan, Rajeearul, Revived,
Richard2Me, Rjobidon, RoyBoy, SCEhardt, Search4Lancer, Shanes, Sonett72, Strateotu, Sue Rangell, TFOWR, Techbiz, The Savage Nation, Thinkstorm, Tide rolls, Torrg, Triplebaconator,
Tualha, TuukkaH, Tyrenius, Venkatpt, Wongm, Ziggles Metropolitan, Zzuuzz, Δ, 281 anonymous edits

Image Sources, Licenses and Contributors

File:Business Model Canvas.png  Source:  License: Creative Commons Attribution-Sharealike 3.0  Contributors:
Aosterwalder, Toomuchcash

Creative Commons Attribution-Share Alike 3.0 Unported
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