Components of A Business Model: Customer Value Proposition

Components of a Business
Model
¡ Customer Value Proposition
¡ Those things that the firm and its products / services can do for
customers to solve their problems and/or satisfy their needs better
than competitors
¡ What is so compelling, engaging, rewarding, or delightful to
customers about what a firm has to offer them that will attract them
from competitors
¡ The customers must perceive the benefits as valuable
¡ Depends upon
¡ Products / service and their attributes
¡ Reputation / Image and other assets controlled by the firm
Model
¡ Market Segment
¡ Groups of customers to whom a value proposition is being offered or
should be offered, their willingness to pay, attractiveness of each
group, size of the group etc.
¡ Quality and quantity of co-opetitors –of the suppliers, customers,
complementors, competitors and any other institution with which a
firm has to cooperate to create value and compete to capture
value.
¡ Market segments where industry forces are weak are more likely to
be profitable
Model
¡ Revenue Model
¡ Generating Money from the customers or other stakeholders
¡ Customer reservation price is the highest price that a customer is
able to pay for the product
¡ Some examples
¡ Advertising, razor-and-blade, brokerage, subscription, freemium,
leasing, licensing, asset sale, loss leader, bait-and-hook, usage fee,
cash and carry, recurring revenues etc.
¡ Pricing is an important part of revenue model: Auction pricing,
posted pricing, cost-plus, skimming, tiered pricing, value pricing, limit
pricing, bundling, give-away, loss-leader and two-part tariff.
¡ Depends upon customer value proposition, market segments, growth
model and capabilities components of the business model.
Model
¡ Growth Model
¡ How can a firm grow profitably and remain sustainable in the
market?
¡ What can a firm do to increase its customers and their willingness to
pay, keep prices close to customer’s reservation price while keeping
costs low
¡ Depends upon
¡ Action of competitors, government regulations etc.
¡ Strategies
¡ Block, Run, Team-up
¡ Cost Structure
¡ Production (Fixed, variable, marginal and sunk costs)
¡ Transaction (Search and acquiring information costs, costs
associated with creating, monitoring and enforcement of
contracts)
Model
¡ Capabilities
¡ Building capabilities is necessary for offering better customer value
proposition, find attractive market segments whose needs it can satisfy
¡ Consists of:
¡ Resources
¡ Assets owned by a firm or having access to
¡ Brands, people, equipment, products, culture, finance,
knowledge, patents, copyrights, trademarks, trade secrets,
relationships with co-opetitors, distribution channels,shelf space,
position in a network vis-à-vis co-opetitors, installed base
¡ Activities
¡ Activities performed by a company to transform resources into value
created and/or captured
¡ Activities of value chain, value shop, value network and include
vertical integration / alliances to accounts receivables
Model
¡ Relational Capabilities (Social Capital)
¡ Defined as the sum of the actual and potential resources
embedded within, available through, and derived from the
network of relationships possessed by an individual or social unit
¡ Capabilities that a firm has by virtue of its relationships to its
coopetitors
¡ Example: When introduction iPod, Apple obtained access to a
huge library of songs from record labels by teaming up with
them
¡ Coke and Pepsi have access to distribution channels and shelf
space by virtue of agreements or contracts with bottlers and
distributors
¡ Network Effects that a firm enjoys by being a member of a large
network
Summary of
Business Model
Questions
Source: Thomas Eisenmann, Business Model Analysis for Entrepreneurs, Harvard Business School Publishing, 2012
Categorization of Business
Models
¡ Generic value-chain position (e.g., platform, franchisee, OEM)
¡ Revenue-collection approach (e.g., subscription, “razor and

blades,” rental)
¡ Value-adding approach (e.g., matchmaking, “long tail”

aggregation, outsourcing, multi-level-marketing,auction)
¡ Broadindustry sector (e.g., professional services, packaged

goods, creative industries)
¡ Strategic positioning within an industry (e.g., software-as-a-

service, low-cost airline, free-commuter newspaper,fashion
designer, “fabless” chipmaker, artgallery)
Categories based on
Revenue Generation Logic
Categories based on
Revenue Generation Logic
Model Definition Examples Sustainability
Commission Fees levied on Travelocity, IndiaMart, Volume / ExpensiveTransactions

transactions based Groupon, Ola, Uber,
on the sizeof the Priceline, Classifieds,
transaction Matchmakers
Advertising End users subsidised MSN, Times of India, Reaching the broad audience /
by advertising Buy.com, Having Targeted orspecialized
Mouthshut.com audience
Markup Based Value added in Amazon.com, LL Beans, Subject to Competitive Pressures
sales Walmart, iTunes
Production Based Value added in Dell Direct, Sony Economies of Scalein production
production Entertainment
Referral / Affiliate Fees for referring Autobytel Short lived models
customers to a
business
Subscription Based Fees for unlimited BSNL, Wall Street Journal Valuable and interesting content
use / Feasible in segmentswith little
or no competition. Do not sustain
due to competitivepressures.
Fee-for-service Fees for metered Fedex, Amazon web Large volume of customers /
service services, Google cloud. intensive usage of service
REVENUE Models
COMMISSION BASED MODEL
Fees levied on transactions based on the size of the transaction
Variants
• Transaction Broker, Market Exchange, Buyer Aggregator, Distributor Broker,
Virtual Mall, Metamediary, Auction Broker, Reverse Auction, Classifieds,
Matchmaker
ADVERTISING MODEL
End users subsidized by Advertising, Charges fees for banners, permanent
buttons, pop-upwindows etc.
Variants
• Generalized Portal, Personalized Portal, Specialized Portal, Attention /
Incentive Marketing, Free Model, Infomediary Registration Model,
Recommender System, Bargain Discounter, CommunityProvider
MARKUP BASED MODELS

Value added in Sales, Usually either wholesaler or retailer
Variants
• Virtual Merchant, Catalogue Merchant, Click and Mortar, Bit Vendor
Commission Based Models
Buyer Aggregator
¡ Groupon.com
¡ Value Proposition
¡ Bulk discounts to individual customers
¡ Arguably build a loyal customer base for sellers but usually attracts only
bargain hunters
¡ Strong deals: E.g., $50 for $100 worth of apparel at an upscale clothing
store
¡ Revenue Model: Makes money by keeping half the money of discount
¡ Pricing Strategy: 50%of discount
¡ Profit Site: Broker / Agent
¡ Target Market: Any user
¡ Capability
¡ Sustainability Strategy
¡ Has been posting losses since beginning
Advertising Based Models
Generalized Portal
¡ msn.com
¡ Large number of visitors to the site
¡ Revenue Model: Advertising from different parties
¡ Target Market: Businesses
¡ Capabilities: Content coverage
¡ Strong user Base
Advertising takes different forms and sometimes forced (interstitial)

such as in Times of India’s Videos or that in You Tube Videos
Markup Based Models
Bit Vendor
¡ Apple’s itunes Store

¡ Music and Apps available for download
¡ Target Market: Individual customers
¡ Capabilities: Brand
¡ Latest apps and itunes in the store
Production Based Models
PRODUCTION BASED MODELS
Value added in Production through Economies of Scale
Variants
• Manufacturing Direct, ContentProducer, E- procurement,
Networked Utility Provider, Brand IntegratedContent
Dell.com
¡ Mass Customization
¡ Target Market: Individual customers
¡ Capabilities: Brand and Fast Delivery, Close Relationships with
suppliers
¡ Strong model requiring significant investment in complementary assets
as well as relationships
Referral / Affiliate Models
¡ Fees for Steering Visitors to a Business. Affiliate revenue is generated
by allowing affiliates to display the content of other businesses
¡ Variants
¡ Pay-per-Sale (Flat fee or a %age of transaction)
¡ Pay-per-Click (Fee based on Click)
¡ Pay-per-Lead (Fees for generating leads)
¡ AutoByTel
¡ Customer information generated through the website is sold to various
sellers
¡ Capabilities: Customer Base
¡ Value-added services through reviews, tips, comparisons etc.
Subscription Based Models
¡ Fees for Unlimited Use
¡ Variants
¡ ISPs / OSPs, Last Mile Operators, ContentCreators
¡ bsnl.co.in
¡ All kinds of Telecom related services
¡ Target Market: Businesses and Individuals
¡ Capabilities: Brand Name / Govt. Company
¡ Value Added services
¡ Low Cost market
Fee-for-Service Based Models
¡ Fees for Metered Service
¡ Variants
¡ Service Provider, B2B Service Provider, Value Chain Service Provider, Value
Chain Integrator, Audience Broker, Collaboration Platform Provider,
Application Service Provider
¡ Employeematters.com
¡ Conducts Workshops foremployees
¡ Capabilities: Experienced instructors
¡ Experience in conducting workshops for employees
SUSTAINABILITY
• Commission Based -Volume /Expensive Transactions
• Advertising Based - Reaching the broad audience / Having Targeted

or specialized audience
• Mark-up Based –Subject to Competitve Pressures
• Production Based - Economies of Scale in production
• Referral Based -Short lived models
• Subscription Based - Valuable and interesting content / Feasible in segments

with little or no competition. Do not sustain due to competitive pressures.
• Fee-for-Service Based - Large volume of customers / intensive usage of

service
VARIM FRAMEWORK
Value -Adaptability -Rareness –Inimitability –Monetization framework
Derived from
¡ Resource-Based View
¡ Dynamic Capabilities View
¡ Product-Market Positioning
VARIM Framework
¡ Resource-Based View
¡ Firms resources give it sustainable competitive advantage
¡ Resources must be Valuable, Rare, Inimitable and Non-substitutable
¡ Dynamic Capabilities View (Agility)

¡ Focuses on the issue of competitive survival in response to rapidly
changing contemporary businessconditions
¡ Competitive-Positioning View
¡ For gaining sustainable competitive advantage. Three generic types:
¡ Cost-Leadership
¡ Differentiation
¡ Focus (Niche / Massmarket)
VARIM Framework
ADAPTABILITY
Is the business model-or core parts
of it-cost-effectively reconfigurable
or re-deployable to offer benefits
that customers perceive as valuable
to them?
VALUE RARENESS
MONETIZATION
Does the firmmake, Is the firm the only one
Does the Business
or stand to make, that offers the
Model offer benefits
money from offering customers benefits? If
that customers perceive
the benefits to not, is the firm’s levelof
as valuable tothem?
customers? the benefits higherthan
that of competitors?
Source: Afuah, A. (2014),

IMMITABILITY
Business Model Innovation: Are the benefits difficult forother
Concepts and Cases, First firms to imitate, substitute or
Edition, Routledge Books, leapfrog?
London, UK
VARIM Framework
¡ Value (Quality of Resources and Activities)

¡ Is a function of the quality of underpinning capabilities – Resources
and activities
¡ Resources: The Team, Brand, Reputation and Network effects, if
any, exhibited by theproduct
¡ Activities: Low Cost, Differentiation, orFocus
VARIM Framework
¡ Adaptability (Resources / Capabilities of a firm)

¡ Can the business model or parts of it be cost-effectively reconfigured
or re-deployable to offer benefits that customers perceive as
valuable?
¡ Brands, Channels and shelf-space can be reconfigured
¡ Design activities of a company can be reconfigured
¡ E.g., Dell’s Direct to customer model
¡ Can be measured at some level by:
¡ The number and diversity of new products (benefits) that the firm
has been able to offer,
¡ The level of “improvement” in the benefits that customers
perceive, and
¡ Revenues from new products
¡ Flexibility of capabilities
VARIM Framework
¡ Rareness (How Rare is the Value provided by the firm?)

¡ Firm is not likely to make much money if many other firms offer the
same benefits to customers. Can be measured by:
¡ Number of competitors or firms with similar / substitute products
¡ Level of the benefits from firm compared to those from
competitors
¡ Inimitability
¡ Firm will continue to make money only as long as the benefits are not
imitated, substituted, or leapfrogged. Can be measured by:
¡ Number of imitators
¡ Inimitability of resources
¡ Inimitability of activities
VARIM Framework
¡ Monetization (Setting the PriceRight)

¡ Return on sales or any other measure of profitability
¡ Right pricing
¡ Importance and value of complementary assets
¡ Number of customers with a high willingness to pay
¡ Number and quality of sources of revenues
¡ Cost structure
¡ Industry attractiveness and firm’s positioning in it
Teece Model
¡ Proposed by Prof. David Teece, Univ. of California at Berkeley
¡ Puzzled by how EMI, the original inventor of CAT Scan, could not
profit from its innovation, but GE and Siemens did
¡ He argued that to make money from an invention or discovery,

two factors are important:
¡ Complementary Capabilities
¡ Imitability
Teece Model
¡ Capabilities
¡ Resources
¡ Tangible (Asset on the balance sheet: plants, machinery, cash
etc.)
¡ Intangible (Brand name, patents, copyrights, trade secrets etc.)
¡ Organizational (Know-how, tacit knowledge, routines, processes)
¡ Activities (Such as R&D, Manufacturing,marketing etc.)
¡ Relational Capabilities / Social Capital (Relationship with co-
opetitors, network effects, access to finance)
¡ Capabilities for profiting from an innovation

¡ Invention (New way of doing things)
¡ Complementary (other capabilities): All resources beyond those that
underpin the invention or discovery that a firm needs to create and
capture value in the face of an innovation
Teece Model
Source: Teece, D.J. (1986). Profiting from Technological Innovation: Implications for integration, collaboration,
licensing and public policy. Research Polity, 15(6), 285-306.
Teece Model
Determining One’s Complementary Assets

¡ First, the firm should understand what product-market position it
occupies or wants tooccupy.
¡ the customer value, scope, and positioning (relative bargaining
position vis-à-vis co-opetitors) that a firm attains or wants to attain.
¡ Second, the firm should understand its value configuration

(value chain, value network, or value shop) and determine
what capabilities, other than the technology, are critical not
only to offering the right customer value to the right market
segments but also to increasing the firm’s relative positioning vis-
a-vis suppliers, customers, and complementors.
¡ Do the complementary assets make an unusually high contribution
to the value that customers perceive? and
¡ How quickly and to what extent can other firms duplicate or
substitute the complementary assets?
Teece Model
¡ Limitations
¡ Leaves out other determinants of appropriability such as a firm’s
position vis-à-vis coopetitors in an attractive market, pricing strategy,
sources of revenues and the activities that increase the number of
customers that buy a particular product.
¡ Although an inimitable product and scarce important complementary
capabilities can give them some bargaining power over customers
but they may not give bargaining power over suppliers,
complementors, or customers with monopoly power in their industry.
¡ Even where a firm has unchallenged power over its coopetitors, it may
still leave money on the table, if it has a wrong pricing policy
Teece Model
¡ Sometimes capabilities can be handicap

¡ Capability may prevent a company to engage in an innovation
¡ E.g., Compaq unable to copy Dell’s direct-to-order model
¡ Engages in innovation but fails because of pre-innovation
capabilities
¡ E.g., Blockbuster’s offline rental stores led it to Bankruptcy when
Netflix opened its online movie rental store.
Value Configurations
¡ Companies are mainly concerned with creating value in terms

of differentiated products or services, or in offering
undifferentiated products at a lower price to customers.
¡ Companies are adding value in some way that makes

customers willing to pay. Where should the companies focus to
create value?
¡ Three major value configurations

¡ Value Chain
¡ Value Shop
¡ Value Networks
¡ James Thompson presented a typology of organization’s

technologies
¡ Long-linked
¡ Interdependence are sequential and tasks are accomplished
serially)
¡ E.g., Continuous process and Assembly lines
¡ Standardized, repetitive tasks
¡ Intensive
¡ Oriented towards solving highly specific problems
¡ E.g., Hospital providing services to patients, Movie Makers
¡ Mediating Technologies
¡ Standardized criteria for providing intermediary service, decision
making and scale of operations
¡ E.g., Banks
Source: James D. Thompson, Organizations in Action (New York: McGraw-Hill, 1967).

¡ Value Chain
¡ Interdependencies are sequential and tasks are accomplished serially.
¡ E.g., Continuous process and Assembly lines
¡ Effect of Internet
¡ Internet improves coordination between partners in the Chain
¡ Demand and Supply can both be well coordinated
¡ Increases geographical Scope and a geographically diverse audience
¡ Digital products can be downloaded thus saving on shipping costs
¡ Lowering of Inventory
¡ Disintermediation and reduction in vertical integration (e.g., Dell.com, Airlines)
¡ Enables much larger scale of operations (e.g., Amazon.com)
¡ Key
¡ In process efficiency (rather than product differentiation) and low cost
¡ Value Shop
¡ Oriented toward solving highly specific problems.
¡ Intensive interaction between the problem solvers and the object of their
attention
¡ Based on most types of service provisions, such as doctor’s service in a clinic,
Restaurant etc.
¡ Enables larger scale of operations and widens the geographic Scope
¡ Allows more information to be collected and processed by the service provider
¡ Enables a new delivery medium or mechanism
¡ Reduces competency by providing the general knowledge base for the value
shop firm
¡ Key
¡ Getting basic information back to customers without the intervention of customer
service agent in a timely and cost-efficient fashion. E.g., Airlines reservation
system, ticketing systems
¡ Increasingly provide value on the basic services, such as Flight status, Airplane
layouts, Seat locations.
¡ Value Network
¡ Provides the service of a connection between two or more customers who wish
to be interdependent, such as borrowers and lenders (depositors) or buyers and
sellers.
¡ Facilitate the role of the intermediary service
¡ E.g., Online Travel Agents such as Travelocity and Expedia
¡ Allows scalability to serve 1000s of users at the same time
¡ Compounds network externalities
¡ Widens the geographic scope of the network
¡ Enables a larger scale of the network
¡ Key
¡ Important to increase and widen the network. Focus on network promotion and
contract management
¡ There is value in being part of the network that the intermediary controls or
supports.
Value Configuration
¡ Value Chain
¡ In process efficiency rather than product differentiation and low cost
¡ Value Network
¡ Important to increase and widen the network. Focus on network
promotion and contract management
¡ There is value in being part of the network that the intermediary
controls or supports.
TEECE Model
First Mover’s Advantage
¡ A capability, or product-market-position that

¡ a firm acquires by being the first to carry out an activity, and
¡ gives the firm an advantage in creating and appropriating value
¡ Categories of First Mover Advantage
¡ Total Available market preemption by capturing as much of the

total available market as possible
¡ Economies of Scale, Size effects, Economic rents and equity, network
effects, relationships with coopetitors
¡ Lead in technology, innovation and business processes

¡ Intellectual property, learning, organizationalculture
¡ Preemption of scarce resources

¡ Complementary assets, location, input factors, plant and equipment
¡ Categories
¡ First-to-customer
¡ Buyer switching cost, buyer choice under uncertainty, brand name
building
¡ First to establish a system of activities

¡ Difficult-to-imitate system of activities
¡ First to make irreversiblecommitments

¡ Reputation and signals
First Mover’s DisAdvantages
¡ Free-Riding on First-Mover’s Investments
¡ Resolution of Technological and Marketing Uncertainty
¡ Changes in technology or customer needs and first-mover

inertia
First Mover’s Advantage /
Disadvantage
¡ First Mover Advantage arisewhen
¡ Pioneering helps build a firm’s image and reputation
¡ Early commitments to raw material suppliers, new technologies and
distribution channels can produce cost advantages
¡ Loyalty of first-time buyers ishigh
¡ Moving first can be a pre-emptive strike
¡ First Mover Disadvantage arisewhen

¡ Costs of pioneering are sizeable and the loyalty of first time buyers is
weak
¡ Rapid technological change allows followers to leapfrog pioneers
¡ Skills and know-how of pioneers are easily imitated by late movers
¡ It is easy for latecomers to crack the market
Competitor’s Handicap
¡ Why do competitors not move first?
¡ Dominant Logic
¡ Strategic Fit
¡ Prior Commitments
¡ Relationship Related
¡ Sunk Cost-Related Commitments
¡ Do not have scarce capabilities
¡ Fear of cannibilization
Typical Growth Pattern ofa
Market
Cumulative Sales
Market
Development Growth Maturity
Time
Indian Market is around $10 Billion and still in very early stages of development
Hypercompetition
¡ Hypercompetition
¡ Intense Competitive moves where competitors imitate the
competitive advantages of the industry leader
¡ Quick imitation and counterattack results in lack of differentiating
factors among competitors with none having a superior competitive
advantage over rivals
Driving Forces of
Hypercompetition*
¡ Customer Expectations
¡ Value for money, money-back guarantees, on-time delivery, cash-on
delivery, customized shopping experience
¡ Changes in Technology
¡ Technological advances lowers barriers to entry
¡ Launch of e-books
¡ Lowering of Entry Barriers (Both around nations and industries)

¡ Government did not permit FDI in e-commerce but allowed investment
in online business that did not engage in inventory transactions
¡ Deep pockets of some firms

¡ Firms with deep pockets use their financial muscle to attack their rivals
*Richard D’Aveni, Waking up ot the New Era of Hypercompetition, Washington Quarterly, 21(1), 1998, pp. 184-185.
Battles of Hypercompetition*
¡ Price and Quality

¡ Offering superior customer value
¡ Timing and Know-How

¡ Customer Delight Model
¡ Focus on back-end operations
¡ Strongholds
¡ Domestic Market but with fierce competition
¡ Deep Pockets
¡ By forming alliances (cooperative strategy)
¡ Diversifying into related businesses where competition in not
hypercompetitive
¡ Niche Strategy
Surviving Hypercompetition*
¡ Stakeholder Satisfaction
¡ Strategic soothsaying (Predicting what customers will buy in future)

¡ Speed (Being quick in taking advantage of opportunities and
counterattacking its competitors)
¡ Surprise (Suddenly making a move that gives it a superior position)
¡ Signaling (Signal to display its intent and manipulate the rivals’

competitive moves)
¡ Shifting the rules of the game (Changing positioning, product

content or delivery)
¡ Strategic thrust (Misdirecting and misleading of the competitor so

as to create confusion)
Marketplace or Inventory
based?
Inventory Hybrid Marketplace

Model Model Model
Zappos Amazon Alibaba
Flipkart (early days) Flipkart in 2013 Flipkart in Future

Marketplace Vs Inventory
¡ Marketplace Model
¡ Asset Light
¡ Wider Product Portfolio
¡ Speed and Scale
¡ Legal Issues
¡ Inventory Model
¡ Control
¡ Customer Experience
Marketplace Vs Inventory
¡ Cost of holding stock in Inventory / Hybrid Model

¡ Cash conversion cycle is a better measure
¡ Days of inventory +Days Receivable –Days Payable
¡ Target: 27 days
¡ Amazon: -14 days
The Long-Tail Distribution of
Product Sales
Cumulative Sales
Head Middle Long Tail

(Fastest Selling Products) (Products with reasonable volume) (Niche Products)
Time
Indian Market is around $10 Billion and still in very early stages of development
Network Effects
Definition
¡ Network
¡ Value of a network increases as more users use that service
¡ E.g., Mobile phones
¡ Utility of a mobile phone is limited if the network has only two users
¡ The utility increases if the network is broadened
¡ Metcalfe’s Law: The utility (U) of a network is proportional to the
square of the number (n) of its users
U ≈K*n2
Network Effects
Types of Networks
¡ One-sided network where users are homogeneous

¡ In stock trade the role of buyers and sellers are inter-changeable
¡ Telephone users both receive and make calls
¡ Two-sided networks where users are different but play

consistently the samerole in transactions
¡ Credit Card merchants and Card Holders are two distinct set of users
¡ Airlines and Travel Agents
¡ Video Games developers and players
¡ Three-sided networks
¡ You-Tube: Content consumers, Content providers and Advertisers
Network Effects
¡ Evident when a network’s value to a user depends on the

number of other users with whom that user can interact
¡ In a two-sided network when members of one group have a

preference regarding the number of users in the other group,
the network exhibits cross-side networkeffects.
¡ E.g., Amazon’s appstore, Google’s playstore, Operating Systems
¡ When a group’s members have preferences over the number of

users in one’s own group, the network exhibits same-side
network effects.
¡ E.g., Search Engines acceptability
Platform Mediated Networks
¡ In PMN – a platform facilitates interactions between users
¡ Platform encompasses the common components and rules

employed by network users in most of their interactions
¡ Components – Hardware, Software, and services required by users,
along with an architecture that specifies how these components fit
together
¡ Rules –Standards that ensure technical compatibility between
components, protocols that govern information exchange (e.g.,
authentication procedures), policies constraining the behavior of
network users, and contracts specifying terms of exchange and the
rights and responsibilities of network participants
¡ Example: Microsoft Xbox platform, Google’s Search Engine
¡ Platform Providers
¡ Mediate network user’s interactions and are the primary point of
contact with the platform
¡ Platform Sponsors
¡ Hold the rights to modify the platform’s technology and determine
who may participate in the network as platform providers,
component suppliers, and network users.
¡ Sometimes such rights are widely diffused that there is no single entity
that serves as sponsor
¡ Platform Component Suppliers

¡ Provide network users with essential platform good and services that
are not offered directly by platform providers
Platform-Mediated Networks
Changing Rules of Strategy
¡ Resource Control to Resource Orchestration

¡ According to resource based view of competition, firms gain
advantage by controlling scarce and valuable – ideally, inimitable –
assets.
¡ With platforms, the assets that are hard to copy are the community
and the resources its members own and contribute (such as rooms,
cars, ideas and information)
¡ From Internal Optimization to ExternalInteraction

¡ Firms organize their internal resources by optimizing an entire chain of
product activities, from materials sourcing to sales and service
¡ Platforms create value by facilitating interactions between external
producers and consumers –Key skill is ecosystem governance
Platform-Mediated Networks
Changing Rules of Strategy
¡ From a focus on customer value to a focus on eco-system value

¡ Firms seek to maximize the lifetime value of individual customers of
products and services, who, in effect, sit at the end of a linear
process
¡ Platforms seek to mazimize the total value of an expanding
ecosystem in a circular, iterative, feedback-driven process. This may
require subsidizing one type of consumer in order to attract other
Barriers to Network Adoption
Favoritism Risk
¡ Platform sponsors may skew the terms of exchange in favor of one side in
a way that deters participation by the disfavored group.
¡ E.g., American Airlines investment inSABRE
Relationship Risk
¡ Specifically in two-sided networks
¡ Tension between supply-side users and platform intermediaries over control
of buy-side userrelationships
¡ Users may avoid a new network if they fear losing control over their
relationships with traditional trading partners
¡ Competitive Risk
¡ Specifically in two-sided networks
¡ Both buyers and suppliers may worry about ‘business stealing’ and pricing
pressure if too many direct rivals also participate in the network
¡ E.g., B2B exchanges (Sesami.com)
Exploit irregular topologies
¡ Targeting sub-groups of potential users rather than everyone for

building your network
¡ Requires identifying a useful irregularity in network structure
¡ E.g., gardenweb.com, timezone.com, bottlenotes.com
¡ An unusually small network won’t be useful (such as a

community offering memberships to those whose name starts
with letter ‘A’.
¡ Vertical Segmentation
¡ Horizontal Segmentation
¡ Complement’s incumbent technology
Exploit irregular topologies
¡ VERTICAL SEGMENTATION
¡ Focus on a specific set of users, grouped by quality.
¡ Example
¡ The Ladders – Matches high-end job seekers with suitable jobs
¡ Quigo – Serves only the web’s largest and best-known publishers
¡ HORIZONTAL SEGMNETATION
¡ Choose to focus on one or more characteristics, not directly tied to quality,
that appeal to a distinct group of users
¡ Match.com –A generalized dating site
¡ Jdate.com –Jewish Singles
¡ eHarmony.com –Matching singles interested inmarriage
¡ Many variants of matrimonials in India
Users underserved by the incumbent(s) may themselves form a reasonable

network
COMPLEMENT INCUBMENT TOPOLOGY
Harness Virality
¡ NATURAL VIRALITY
¡ Some platforms involve user interactions that lend themselves to viral adoption
¡ Natural virality is more pronounced when platform interaction occurs primarily

in small groups or even in dyads (groups of two)
¡ In such case, a user will put effort naturally to recruit friends
¡ E.g., Skype, Dropbox

Engineered Virality &Referral Payments
¡ Some platforms add features to attempt to encourage virality when their

fundamental features do not entail shared usage and viralspread
¡ E.g., No link between discounts from local merchants and a group of friends
making purchases jointly. LivingSocial, group discount site, offers a user a
free redemption to anyone who refers three friends who purchase that
same voucher
¡ Some platforms provide tools to facilitate communication among friends in

a hope that word of mouth will attract users
Provide Subsidies
¡ SUBSIDIZE EARLY ADOPTERS

¡ Temporary subsidies to one class of user may help mobilize that portion of the
platform’s business, while also sparking interest from other class ofusers
¡ E.g., Users signing up with PayPal in 2000 received a $10 sign-up bonus
¡ Once a sufficient base of users was achieved, sign-up bonuses were sharply
reduced and ultimately eliminated
¡ ENCOURAGE DEVELOPMENTS OF COMPLEMENTS

¡ Platforms can encourage the development of complements by offering
permanent subsidies to one set of users
¡ Not merely start-up promotions, but a considered decision to let one set of
users fund the participation of another
¡ E.g., Microsoft assists its developer to write windows applications by
providing them with high-quality development tools, seminars,
conferences, and training at low or no cost
¡ E.g., Twitter, Google, Facebook etc. provide APIs to their developers so as to
encourage development of complements
Attract User En Masse
¡ PROVIDE BACKWARDS COMPATIBILITY

¡ Changing from one version of Operating system/software to another
requires backwards compatibility
¡ Backwards compatibility help port users en masse to the new platform
¡ LEVERAGE A PARTNER’S/OWN USERS

¡ Enroll some of all of a partner’s users
¡ Social game developer Zynga using Facebook’s existing users to build its
initial games
¡ Skype being bundled with Kazza installation
¡ Google bundled Google Voice with Gmai
Harvest information from public source
¡ As a partial substitute for recruiting a set of users whose primary

role would be to provide information, some platforms elect to
obtain that information on their own
¡ E.g., Google Crawler indexes web pages into its server
¡ E.g., RetailMeNot posted coupons and discounts for thousands of
online store. These coupons and discounts are harvested by
RetailMeNot’s software and staff from web.
¡ This attracted thousands of user, many of whom went on to post
additional coupons theyfound
Provide interoperability
¡ A new platform can take steps to make sure that its system
interoperates with other widely available platforms
¡ E.g., DVD players being capable of playing CDs make is more
valuable than a stand alone player capable of playing only DVD
¡ Real Networks offered software called Harmony to let Real’s

portable music players play music files stores in Apple’s
proprietary iTunes format
¡ Apple, however, objected but had to upgrade its iTunes to block
Real’s conversion
Mitigate Adoption Risk
Provide Standalone Value
¡ In essence this requires modifying the network, at least

temporarily, to include a service that is valuable even to a lone
customer
¡ E.g., Early versions of the VCR business called for serving both users
(who would own VCRs and buy pre-recorded videocassettes) and
publishers (who would provide movies for purchase)
¡ The record function offered a solution, eliminating consumer’s
need for prerecorded videocassettes because every television
broadcast was suddenly a potential source of video material
¡ E.g., Skype’s call to phone service was valuable even to a lone
customer
Allow pay-as-you-go pricing
¡ For many platforms users hesitate to join due to the risk from up-
front investment
¡ The platform only offers a user a net benefit if sufficient other users
join, yet the cost of joining must be paid up-front
¡ For example, broadband installation requires modem installation but
it is generally provided as free or charged on monthly usage
¡ Example, Xbox demonstrates pay-as-you-gopricing
¡ The console is subsidized and users pay back that subsidy only as
they buy games in the future
¡ This reduces the initial upfront loss to the consumers in case they
need to purchase the Xbox
Stage deployment: Pick one side first
¡ In two-sided networks, when one sided user cares little for the
other side, it is useful to deploy one set of users before
deploying another set ofusers
¡ E.g., Advertisers can be deployed later and the add-free platform
can be created so as to recruit customers first. Later on advertisers
can be called upon the platform
Mitigate Abandonment Risk
Platform provides complements itself
¡ Hoping to assure that one type of participant will be able to

interact with sufficient participants of another type, a platform
provider can itself provide the benefit otherwise provided by
the second type of participant
¡ Windows and Mc OS come with pre-packaged compatible
applications
¡ Facebook opened its side to third-party applications by providing
key functions including photo, messaging and chat
¡ Hardware vendors provide key accessories themselves rather than
relying on the third-party providers in the early stages of marketing
the product
Assure (exclusive) affiliation of
marquee users
¡ Sometimes certain participants are particularly important in
assuring the viability of the network –for example, key software
applications that users rely on, or dominant airlines with frequent
non-stop flights
¡ If a platform can assure the participation of such ‘marquee’
participants, the benefits are two fold
¡ First, the platform attracts users hoping to access those participants
¡ Second, even if the users are already satisfied with other platforms,
they will find that they must join this new platform in order to gain
access to the desired marquee participants
¡ For a marquee participant to join

¡ MS adCenter advertising service made large payments to Facebook
and WSJ to obtain the right to show ads in certain portions of those
sites. This led to other users to join MS ad platform
Build credible expectations forfuture
platform use
¡ If all users expect a platform to succeed, they may have good

cause to join
¡ Networks attempt to build expectations of future success via

costly launch parties or otherwise irreversible up-front
investment.
¡ Launch of Apple’s iPAD or MS Windows are very dramatized so

as to build confidence among the users of their future potential
Business Model Innovations
¡ Important Questions to Answer
¡ Customer Value Proposition

¡ Will the new business model create value proposition for existing or new customers
¡ Market Segments
¡ Will the new business model attract sufficient customers who would be willing to
pay
¡ Revenue Models
¡ Does the new business model require a new pricing strategy
¡ Does it create opportunity for new profitable revenue models
¡ Growth Model
¡ How can the firm grow profitably?
¡ Capabilities
¡ Does the firm has capabilities needed to deliver superior value proposition
Types of BusinessModel
Innovations
POSITION BUILDING I REVOLUTIONARY II
Wal-Mart’s move intorural Online auctions Vs Offline

areas auctions for manyproducts
Refrigerators over harvested

High ice
Degree to which
business model
innovation renders
existing Products non- REGULAR IV CAPABILITIES-BUILDING III
competitive Dell’s Direct model inthe Ethanol Versus Petrol
1990’s Synthetic rubber overnatural
rubber
Low Brick-and-mortar retailand
online retail
Low High
Degree to which business model innovation renders
existing capabilities obsolete
Long Tail Innovation
¡ Long Tail –Chris Anderson (Editor-in-Chief, Wired Magazine)
• A significant fraction of eBay’s revenues come from

selling small volumes of many hard-to-find (one-of-a-
Short Head kind) items
• A large number of the DVD titles that Netflix rent out
Amplitude /Frequency
are non-blockbusters that are not found in brick-and-

mortar stores
• Most of the Google’s revenues come from the many
obscure customers who spend small amounts on
advertising rather than form a few large advertisers
who spent huge amounts, as brick-and-mortar
advertisers
Long Tail
Variable
Long Tail Innovation
¡ Rationale behind Long Tail

¡ The high cost and scarcity of distribution channels and shelf space
¡ Customer’s cognitive limitations and difficulties in making choices
¡ Customer’s heterogeneity, and the high cost of and difficulties in
meeting the individual unique needs of all customers
¡ The Role of Internet

¡ Infinite shelf space to accommodate variety of products
¡ E.g., Books, Music, Videos
¡ Product comparison, online reviews, search engines etc. reduce
search cost and help customers transcend their cognitive limitations
¡ E.g., gsmarena.com, mouthshut.com, farecompare.com
¡ Possibility of mass customization
¡ E.g., Dell, Asian Paints
Long-Tail Debate
¡ Should you invest in the Long Tail Innovation?

¡ Anderson’s Idea
¡ When goods don’t have to be displayed on store shelves, physical
and cost constraints on selection disappear
¡ Online channel change the shape of the demand curve because
consumers value niche products geared to their particular interests
more than they value products designed for mass appeal.
¡ McPhee’s Theory of Exposure
¡ Natural Monopoly: Not only does the most popular product gets
more raw numbers of people of otherwise marginal participation in
the field, but a disproportionate share of its audience consists of
just such marginal people
¡ Double Jeopardy: The larger the proportion of the people
unfamiliar with a given alternative, the less likely are those who are
familiar with it to like itespecially
Less-Is-More Innovation
¡ Winners won by offering customers less of what many of them

have come to expect –a simpler or stripped-down
product/service
¡ Abandoned more-is-better ethos and embraced less-is-more

approach
¡ Less-is-more is good for some consumers and very good for the
producer’s bottomline
¡ The final product is simpler and cheaper than older ones in the
market
Less-Is-More Innovation
I II
More-is-better Cost-reducing MiBis

innovations (MiBis)
Improved E.g., Innovations in E.g., Innovations in

and/ or new Computers Process or incremental
Product Attributes
product innovations
ones added
IV III
Semi-LiMis Less-is-More Innovation

(LiMis)
Deemphasized
or stripped off E.g., Very Rare E.g., Apple’s iPad
Higher Lower
Cost of anInnovation
Why Companies Resist
Crowds?
¡ Companies resist crowds as managers don’t clearly understand
what kinds of problems a crowd really can handle better and
how to manage the process
¡ Still companies are moving into mainstream and if one doesn’t

take advantage of them, competitors surely will
Crowd Vs Traditional Models
¡ Coordination: Traditional companies are relatively well-

coordinated environments whereas crowds are loose and
decentralized with varied skills, experience, and perspectives
¡ Scale and Diversity: Crowd powered businesses can operate on

a scale that exceeds even that of the biggest and most
complex global corporation
¡ Incentives: Crowd powered incentives and difficult to match as

individuals as mostly self-driven whereas traditional
organizations limits one to take challenges outside one’s job’s
purview. Crowd solutions are also cost-effective per output or
per worker
Forms of Outsourcing
Crowd Contest
¡ Sponsor identifies a specific problem, offers a cash prize and

broadcasts an invitation to submit solutions
¡ Work well when it is not obvious what combination of skills or

even which technical approach will lead to the best solution for
a problem
¡ Most useful for problems that would benefit from

experimentation and multiplesolutions
¡ The assessment of a number of submissions gives an idea of the

“technical frontier”, especially if the solution cluster at some
extremes
¡ Very useful in solving design problems in which creativity and

subjectivity influence the evaluation of solutions
Crowd Contest -Challenges
¡ Identify a problem important enough to warrant dedicated

experimentation
¡ Translated or Generalized in order to be immediately
understandable to large numbers of outside solvers
¡ Abstracted to avoid revealing company-specific details
¡ Promotion of contest in a way –prizes and opportunities to
increase stature among one’s peers –that is appeals to
sufficiently skilled participants and received adequate attention
from the crowd
¡ Explicit contractual terms and technical specification (involving
platform design) must be created to ensure proper treatment of
intellectual property
Crowd Collaborative Communities
¡ It is about aggregating a large number of diverse contributions

into a value-creating whole (e.g., Wikis)
¡ Different from Contests
¡ Contents separate contributions and maximize diverse experiments
¡ Communities are organized to marshal the outputs of multiple
contributors and aggregate them into a coherent and value
creating whole
¡ Communities must first assess what should be included in the

final aggregation and then accomplish that through a
combination of technology and process
¡ Strength of community is its diversity but it lacks cohesiveness as
crowds are from varying companies, domains, and industries
who have their own interests and motivations.
Crowd Collaborative Communities
¡ Effectiveness of Communities
¡ Task is simple
¡ Task can be modularized
¡ Loose norms for decision making and coordination
¡ Works best when participants can accumulate and recombine
ideas, sharing information freely –so protecting IP is next to
impossible
¡ Companies create their own communities

¡ Verizon relies on its community to address one another’s technical
questions
¡ Facebook used its community for translating its website into multiple
languages
¡ Lego works with its community of fans to come up with new designs
and products
Crowd Complementors
¡ This crowd-powered innovation enables a market for goods or

services to be built on a firm’s core product or technology,
effectively transforming that product into a platform that
generates complementary innovation.
¡ E.g., iTunes
¡ Vast pools of geographically distributed developers create a

staggering array of complementary innovations such as
software apps and user-generated podcasts
Crowd Complementors
¡ Provides solutions to many different problems rather than just

one
¡ Opportunity lies in the sheer volume of solutions
¡ Revenue from Licensing or a cut on transaction from

complementors
¡ Complementors may create network effects thus making the

platform’s demand to increase and become an industry
standard
Crowd Complementors
¡ Challenges
¡ Allow access to the functions and information in the core product
¡ E.g., Twitter’s API
¡ Exposing technology and assets to outsiders requires to make sure
that they are protected
Key Issues in Crowdsourcing
¡ Control
¡ Collective makes a decision that could harm the company revealing
either a flaw in managers’ thinking or improper application of
collective intelligence
¡ Unpredictability – A decision might not necessarily be bad per se,
but the organization is caught unprepared to deal with it
¡ Unassigned liability – Who is responsible for a poor decision made
collectively
¡ Potential for snowball effect – An opinion might gain nonlinear
momentum through self-amplification
¡ Diversity Versus Expertise

¡ Diversity may not help if participants are not completely ignorant of
the issues
¡ Actual composition of diversity is important
¡ As Sampling biases exist in polls, diversity can also be skewed,
leading to distorted decisions
¡ Organizations need to decide which people to involve based on
their ability to understand the problem at hand and collectively
make positive contributions to solve it
¡ Decisions that require significant expertise should not be outsourced
to crowd
¡ Engagement
¡ People motivations may differ
¡ E.g., Cash rewards, prizes, other promotions, sharing knowledge,
value-driven incentives etc.
¡ Companies need to provide a continuous flow of new, enthusiastic
participants to keep engagement high
¡ Need to provide incentives to sustain people’s motivation over time
¡ Policing
¡ Likelihood of some people misbehaving increases with group size
¡ An implicit code of conduct would help govern people’s behavior
¡ The code must not, however, thwart participants to become unduly
worried about being wrong
¡ Intellectual property
¡ Company needs to disclose information about its problems to get
others to think about.
¡ When a company seeks ideas from outside the organization, it needs
to determine whether and how it will assume ownership of the
resulting intellectual property
Client-Server Architecture
¡ Distributed system model where data and processing is

distributed across a range of components
¡ Set of servers which provide specific services such as printing,

data management, etc.
¡ Set of clients which call on these services
¡ Network which allows clients to access servers
¡ Clients know of servers but servers need not know of clients

Example: Film and PictureLibrary

Computers in a Client-Server Network

Migration to P2P
¡ The number of home PCs is increasing rapidly

¡ Most of the PCs are “fat clients”
¡ As the Internet usage grow, more and more PCs are
connecting to the global net
¡ Most of the time PCs are idle
¡ How can we use all this?
¡ Peer-to-Peer (P2P)
P2P Architecture
¡ A model of communication where every node in the network

acts alike. As opposed to the Client-Server model, where one
node provides services and other nodes use the services.
¡ “Peer-to-peer is a way of structuring distributed applications

such that the individual nodes have symmetric roles. Rather
than being divided into clients and servers each with quite
distinct roles, in P2P applications a node may act as both a
client and a server.”
-- Charter of Peer-to-peer Research Group, IETF/IRTF, June 24,
2004 (http://www.irtf.org/charters/p2prg.html)
Client-Server Vs P2P Arch.
¡ Server-based architecture
¡ Client-Server / Server-Cluster
¡ Problems：
¡ Limited resources
¡ All loads are centered on the server
¡ Server-based architecture has low scalability.
¡ The setup and maintenance cost is high.
¡ Peer-to-Peer (P2P) architecture

¡ Advantages：
¡ Distributing loads to allusers
¡ Users consume and provide resources
¡ P2P architecture has high scalability.
¡ The setup and maintenance cost is low.
P2P Architecture -
Characteristics
¡ Exploit edge resources.
¡ Storage, content, CPU, Humanpresence.
¡ Significant autonomy from any centralized authority.

¡ Each node can act as a Client as well as a Server.
¡ Resources at edge have intermittent connectivity, constantly

being added & removed.
¡ Infrastructure is untrusted and the components are unreliable.
P2P Architecture -Merits
¡ No central point of failure

¡ E.g., the Internet and the Web do not have a central point of failure.
¡ Most internet and web services use the client-server model (e.g.
HTTP), so a specific service does have a central point of failure.
¡ Scalability
¡ Since every peer is alike, it is possible to add more peers to the
system and scale to larger networks.
P2P Architecture -Demerits
¡ Decentralized coordination
¡ How to keep global state consistent?
¡ Need for distributed coherency protocols.
¡ All nodes are not created equal.

¡ Computing power, bandwidth have an impact on overall
performance.
¡ Programmability
¡ As a corollary of decentralized coordination.
P2P Architecture -Types
¡ Collaborative Computing
¡ CPU Sharing (E.g.,SETI@home)
¡ Bandwidth Sharing (E.g., PPLive, PPStream)
¡ Storage Space (E.g.,OceanStore)
¡ Instant Messaging
¡ Communications (MSN, Skype, AOL, SocialNetworking)
¡ People (Buddy Finder)
¡ Affinity Communities
¡ Permits individuals in the network to search other people’s
computers for digital files
¡ Data (Napster, Gnutella)
¡ File Sharing (Napster, GNUtella, Kazza, eDonkey,BitTorrent)
P2P Architecture -Variants
Source: Rüdiger Schollmeier, “Signalling and Networking in Unstructured Peer-To-Peer Networks,” Ph.D. Dissertation,
Technische Universität München, Lehrstuhl für Kommunikationsenetze, 2005.
P2P Architecture -Variants
¡ Hybrid P2P – Preserves some of the traditional C/S architecture.

A central server links between clients, stores indices tables, etc
¡ Napster
¡ Unstructured P2P – no control over topology and file placement

¡ Gnutella, Morpheus, Kazaa, etc
¡ Structured P2P – topology is tightly controlled and placement of

files are not random
¡ Chord, CAN, Pastry, Tornado,etc
P2PDissemination
Service-Oriented Architecture
¡ Characteristics
¡ Provider independence
¡ Public advertising of service availability
¡ Potentially, run-time service binding
¡ Opportunistic construction of new services through composition
¡ Pay for use of services
¡ Smaller, more compact applications
¡ Reactive and adaptive applications
¡ An in-car information system provides drivers with information on

weather, road traffic conditions, local information etc. This is
linked to car radio so that information is delivered as a signal on
a specific radio channel.
¡ The car is equipped with GPS receiver to discover its position

and, based on that position, the system accesses a range of
information services. Information may be delivered in the
driver’s specified language.
Client server architecture Service Oriented Architecture

The application logic resides completely
Application Places the majority of
on the service provider, sometimes
logic application logic into client
provider can also be service requester.
software.
Bulk of processing(about 80%)is
Application Processing is highly distributed. No fixed
on the client side. Processing
processing processing ratio
ratio is 80/20 (client/server)
Visual basic and power-builder,
Web technologies (HTML, CSS, HTTP)
Technology C++, oracle Sybase at the
and XML with SOAP messaging framework
backend
Security controlled within client
Security executable, OS level security WS-security framework
can also be incorporated.
Less maintenance cost, if web service
Larger maintenance cost due
Administration need to be scaled to large group then it
to distributed application cost
incurs large maintenance cost
Contemporary Architectures
¡ Emerging Mobile Digital Platform

¡ Cell phones, smartphones (BlackBerry, iPhone) have assumed
data transmission, Web surfing, e-mail and IM duties
¡ Netbooks: small, low-cost lightweight notebooks optimized for
wireless communication and core computing tasks
¡ Grid Computing
¡ Connects geographically remote computers into a single network
to combine processing power and create virtual supercomputer
¡ Provides cost savings, speed, agility
¡ Cloud Computing and the Computing Utility

¡ Data permanently stored in remote servers, accessed and
updated over the Internet by users
¡ Organizations using cloud computing need only pay for the
computing power they actually use (on-demand or utility
computing)
Cloud Vs Client-Server
Architecture
¡ Emerging Mobile Digital Platform
¡ Cell phones, smartphones (BlackBerry, iPhone) have assumed data
transmission, Web surfing, e-mail and IM duties
¡ Netbooks: small, low-cost lightweight notebooks optimized for wireless
communication and core computing tasks
¡ Grid Computing
¡ Connects geographically remote computers into a single network to
combine processing power and create virtual supercomputer
¡ Provides cost savings, speed, agility
¡ Cloud Computing and the Computing Utility

¡ Data permanently stored in remote servers, accessed and updated
over the Internet by users
¡ Organizations using cloud computing need only pay for the
computing power they actually use (on-demand or utility computing)
Making Social StrategiesWork
Here's how four companies

have successfully
implemented their social
strategies. Each firm reduces
costs of increases customers'
willingness to pay by helping
people establish or
strengthen relationships if
they do free work on the
company's behalf.

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Components of a Business

¡ Revenue-collection approach (e.g., subscription, “razor and

¡ Value-adding approach (e.g., matchmaking, “long tail”

¡ Broadindustry sector (e.g., professional services, packaged

¡ Strategic positioning within an industry (e.g., software-as-a-

Commission Fees levied on Travelocity, IndiaMart, Volume / ExpensiveTransactions

MARKUP BASED MODELS

Advertising takes different forms and sometimes forced (interstitial)

¡ Apple’s itunes Store

¡ Fees for Unlimited Use

• Commission Based -Volume /Expensive Transactions

• Advertising Based - Reaching the broad audience / Having Targeted

• Mark-up Based –Subject to Competitve Pressures

• Production Based - Economies of Scale in production

• Referral Based -Short lived models

• Subscription Based - Valuable and interesting content / Feasible in segments

• Fee-for-Service Based - Large volume of customers / intensive usage of

¡ Dynamic Capabilities View (Agility)

Source: Afuah, A. (2014),

¡ Value (Quality of Resources and Activities)

¡ Adaptability (Resources / Capabilities of a firm)

¡ Rareness (How Rare is the Value provided by the firm?)

¡ Monetization (Setting the PriceRight)

¡ Proposed by Prof. David Teece, Univ. of California at Berkeley

¡ He argued that to make money from an invention or discovery,

¡ Capabilities for profiting from an innovation

Determining One’s Complementary Assets

¡ Second, the firm should understand its value configuration

¡ Sometimes capabilities can be handicap

¡ Companies are mainly concerned with creating value in terms

¡ Companies are adding value in some way that makes

¡ Three major value configurations

¡ James Thompson presented a typology of organization’s

Source: James D. Thompson, Organizations in Action (New York: McGraw-Hill, 1967).

¡ A capability, or product-market-position that

¡ Categories of First Mover Advantage

¡ Total Available market preemption by capturing as much of the

¡ Lead in technology, innovation and business processes

¡ Preemption of scarce resources

¡ First to establish a system of activities

¡ First to make irreversiblecommitments

¡ Free-Riding on First-Mover’s Investments

¡ Resolution of Technological and Marketing Uncertainty

¡ Changes in technology or customer needs and first-mover

¡ First Mover Disadvantage arisewhen

¡ Why do competitors not move first?

¡ Lowering of Entry Barriers (Both around nations and industries)

¡ Deep pockets of some firms

¡ Price and Quality

¡ Timing and Know-How

¡ Strategic soothsaying (Predicting what customers will buy in future)

¡ Signaling (Signal to display its intent and manipulate the rivals’

¡ Shifting the rules of the game (Changing positioning, product

¡ Strategic thrust (Misdirecting and misleading of the competitor so

Inventory Hybrid Marketplace

Zappos Amazon Alibaba

Flipkart (early days) Flipkart in 2013 Flipkart in Future

¡ Cost of holding stock in Inventory / Hybrid Model

Head Middle Long Tail

¡ One-sided network where users are homogeneous

¡ Two-sided networks where users are different but play

¡ Evident when a network’s value to a user depends on the

¡ In a two-sided network when members of one group have a