Comparing Business Models

Vijaya Thyil and Geoffrey Durden from La Trobe University in Melbourne, Australia invited me to contribute to a quantitative study on business models of Australian companies. I found this quite interesting and accepted the invitation because I think it will help us better compare business models and maybe it will even lead to identifying patterns of business model success.

In a quick brainstorming session I came up with some ideas for different scales for each of the 9 business model building blocks which I use to map a company's business model. These scales can help describe the characteristics of each business model building block of a company in a more quantitative way. The whole set of variables of the 9 building blocks will then give us a representation of the entire business model. If we combine this representations with measures of success, such as profit growth or stock performance we might be able to find particular patters. For example, we might find that the business models of successful companies are characterised by decentralised and deversified distribution channels. Or, we might find that business models focusing on niche markets are more successful than business models focusing on mass markets... and so on.

Here the set of scales for the buidling blocks that I came up with during my brainstorming:

Value Proposition:

  • low cost/value - high cost/value
  • follower (e.g. mass market MP3 players) - innovator (e.g. MySpace.com)

Customer Segments:

  • niche markets (e.g. long tail) - mass markets

Distribution Channels:

  • reliance on owned channles (e.g. retail stores) - reliance on partner channels (e.g. affiliation)
  • centralised - decentralised

Customer Relationship:

  • owned/direct relationship (e.g. Dell) - partner/indirect relationship (e.g. Nokia)
  • transactional - relational

Value Activities/Configuration:

  • owned activities - distributed activities (e.g. Cisco)
  • simple activites - complex activities

Core Capabilities:

  • self-reliance (e.g. Telcos own their network) - dependant (e.g. Skype relies on Internet infrastructre)
  • centralised - decentralised

Partnerships:

  • few partners - complex value webs

Cost structure:

  • lean (e.g. Dell) - fat (e.g. Pharma)

Revenue Streams:

  • limited (e.g. Google from advertising, Pharma from blockbusters) - diversified (e.g. General Electric)
  • controlled - uncontrolled

Of course these are just some uncooked ideas that really would need some more thinking. However, I think this approach could help to find some interesting patterns in business model comparison...

In general I also find the theme of how much a company controls the building blocks of its business model interesting. I wrote about this loss of cotrol in an earlier blog and think this could become a very hot topic in the future. For example, eBay does not entirely control what (value) is offered on its platform (except for eliminating some illegal offers). Or, most companies do not control the communities that discuss their products. Or, sales are increasingly made through marginally controlled affiliates. Or, take the example of Skype which does not control the infrastructure through which its services are delivered... This theme of loss of control for each business model building block in comparison with performance could also be something to measure in research.

I'll try to summarize what comes out of my visit to Australia at the end of February - so stay tuned for further progress in thinking ;-)