Hello everyone, today's presentation is on developing business model innovations. As you know we have our structure of free book of innovation that includes product innovation, service innovation, business model innovation which we'll talk about today. Which ties together with brand experience which we'll talk about in this module. Innovation through sustainability and of course the internal process innovation. But today we will focus on business model innovation. So let's start by talking about what exactly is a business model? One really simple definition comes from Henry Chesbrough who is an expert on open innovation. But he defined them as a series of activities and I think this word is important. It's a set of activities that a business might get involved in, which includes everything from the first stage in the process of making something which could be getting the raw materials. And the goal for that getting raw material is to make sure that we create something that satisfies the need for a consumer, that someone you're designing or creating this product service for, in such a way that there is some value that is generated. And this value, it's important to note, that this value should be not just for the business itself but also for the consumer because only when there is consumer value can there be business value for the organization itself. So some key things to keep in mind, it's a set of activities, a series of activities, you're creating something, some product or some service and the final goal is to create value for the business as well as the consumer. So that's sort of an overall understanding or definition of what is a business model. One other thing to keep in mind with business models is they're typically classified into two major categories. One is what's referred to often as B2B, which essentially refers to the idea of a business selling something, a product or a service, to another business. And the other one, which is B2C or business to consumer, is selling directly to a consumer. So there are two major categories of business models. And in our daily routines, we encounter both of these types of models of business. Now what we'll do today is we'll get into a series of different kinds of business models. So there is a whole range of existing and new business models that are out there. So we'll talk about some of these today about 16 of them. And we'll look at some examples as well. So the first one is creating some kind of a physical good or service, so something that is tangible. This is normally directly marketed to the consumer. Or it is sold to a distributor. Or, in some cases, exclusive rights are given to certain distributors. So, for example, in the first case, companies that make furniture, or computers, or any physical product, are in the first category. In some cases they sell it to a distributor so you have a manufacturer and there's a second party which has the rights to distribute it and they are the ones who then reach out to the consumer. And the third one, very often happens with media like books or music where exclusive rights are given only to some distributors to get the content out there. So again here what you see an example of is Apple has a whole range of devices, physical products, like computers, mice, phones etc. And that is a perfect example of this type of a business model. The second one is, so first it's manufacturing, or creating a physical good or service. The second is distribution. And there's a whole range of different kinds of distributors of goods and services. The first one is a general purpose retailer. So anyone who has the possibility and the means of selling product, a whole range of products out in the marketplace. That's one. The second one is same thing but with a very specific focus. So for example, companies that might just sell toys to children, there's a company called Toys R Us. That's an example of a specific niche, so you have a specific user group you focus on. The third one is a private sales club, right? In this case, you sign up for a club, you sign up for a membership. And you get access to a specific sets of products that only you have access to because you have paid an annual membership to that club. Another interesting model which is a very new model, a company called Woot, woot.com, practicer, which is one product a day. So they have one product every day that is on sale that you can buy, if you go to their website. And then the last one is bricks and clicks. Now what this refers to is, so bricks and mortar is essentially a physical store that you can go to. Like you can walk into a Walmart, you can walk into a Macy's store. So you can go into these stores and buy products there and that's a bricks and mortar store. The clicks model essentially is buying online. So some companies now are doing a combination of bricks and clicks, which means, you can actually go into a store, you can try on clothing and you can buy it online. Or you can look at something online, you can have a series of clothes for example, and you can buy them but you can pick them up in the store. So this combination of online and offline or physical and digital is what's referred to as bricks and clicks model. So for example, here you see a massive warehouse of Amazon and essentially what they do is they are a distributor of a whole host of products from consumer goods to furniture, to clothing, electronics, etc., right? So that's one example of how this operates. The third one is what's called a franchise model. So there is already a successful business that's out there and if another party, a second business serves as a franchise for that model. Very easy example is a company like McDonald's or Subway for instance. What they do is they have a brand, they have a certain product, and you can become a franchiser for McDonald's. You set up the store, you know that it's a popular product, you know there's a set of standards that you have to live by. But you become the person that gets the service or product out to the consumers. So that's the franchise model. The fourth one is what's called a razor and blade model. And the reason for that is it comes from companies that do razors and blades. But it's actually used, it's often referred to as a bait and hook model as well. But the way this operates is, and you can see this in razors with Gillette for example. Is that the razor itself, is often extremely affordable or free. For example, this is sometimes, Gillette used to do this for a while, they would send the razor for free for men who graduated from high school. But then the business model is set up in such a way that you have to pay a pretty significant amount of money to buy those cartridges and the razor only works with those specific types of cartridges. So they keep changing the cartridges and they have new razors, so you have to have that specific razor for this specific cartridge, and the company makes money, not on the razor, but they actually might lose money on the razor, but they'll make up money on the cartridges. And that's why they often are really highly priced in terms of the cost. Another example of this is apps that for example, Google or Apple creates, and these apps essentially are also things that you pay for. So you get a phone or you get some sort of a smart device. And then you have to buy apps for that device to make it run. You cannot do anything with it unless you have these specific apps that you can use. So that's another example of a razor and blade model. Another one is something that's called a brokerage or marketplace model. And broker essentially is someone who sells certain services for somebody, right? So in this case, it's selling physical goods. Again this could be an example like a Walmart or a store. It could also mean renting physical goods. So for things like, you might have heard of Airbnb, which is a, it's almost like a hotel but that uses consumers as hoteliers or hotel services providers. So you're actually renting out a room in somebody's home. You can set a platform with specific sets of virtual goods, again, buying apps from the Google Play Store or from Apple is an example of this. Financial goods, so a bank, for example, is an example of something like this. They provide financial services. Human services, this is interesting, so places like Amazon for instance, have something called Mechanical Turk and what that is, is for example if I'm a plumber or a maintenance person or an electrician, I could offer my services through Amazon and somebody else who might need that service could hire me from Amazon. So that's human services. And then the last one is experiences where there are certain companies who will provide certain specific experiences for you, so they might come pick you up, they might take you to a concert or take you to a movie or take you to an exhibition somewhere and that is a whole sort of package of experiences that they provide. So that's the fifth model, the brokerage or marketplace model. eBay is a perfect example of that because what they do is they don't actually make the products themselves, what they do is they are an auction house, right? So you can actually buy any sort of a product or bid on any sort of a product at eBay because they are bringing the buyers and the sellers together at their website. Another model is a landlord model for renting products and services. And in this case, for example airlines, you're actually renting a seat on the plane when you fly somewhere. Or a hotel, you're actually renting a bed or a room for a day or few days when you stay at a hotel. So that's the landlord model of renting services. Another one is an advertisement base model for content. And you see this quite a bit on websites. So, displays, and banner ads, pay-per-click ads, media ads. So, for example, if you go to a website, very often you might search for some sort of content. You might see some ads appear on that page. Google makes most of its money in this way, by showing ads that are connected to specific content. And so buyers then pay for those ads to Google. In that process, Google makes money and if the content is popular, the company that's paying for the ads gets more viewership from the people as well. The other one which is in media is you go to YouTube for example and you watch a certain video. Before you actually get to the video you have to watch a commercial and that's an example of media ads. And this happens on television as well. In order to get to a certain show, you have to watch an ad before you can actually get that content. The next one is a subscription model and this is very very popular now with software. So in the past software used to be offered on CDs for example or you get the box in the mail. But now software is often sold in a subscription model where you essentially go online to the company, you download the software or in some cases, you just access the cloud for the software. So you're not really getting anything physical but you pay a monthly fee. So instead of buying it outright, you're paying them $10, $15 a month for that specific piece of software. And that's a really popular model now with companies like Adobe that is doing subscription for their software instead of selling it outright. The next one is a multi-level marketing and what happens in this case is consumers themselves become marketers, they become sellers. So for example, Tupperware that does plastic boxes for food containers and things of that nature, what they often do is they have consumers host what are called Tupperware Parties. So you go to somebody's home and you can actually buy products from consumers themselves. And that's called the multi-level marketing, converting consumers into marketing folks. The next one is what's called a listing fee model. So you might know of companies like LinkedIn or Monster.com What they do is they are essentially websites where people can go to, for example, LinkedIn is a website where you can make connections with other professionals but you can also as a company, you can also list a job opening for instance. And then, as a company, you pay LinkedIn for the job listing and you pay by the number of days it might be available for people to see on LinkedIn or same with Monster.com. A job listing can be posted and whoever goes to their website and does a search, can find your job and therefore apply directly through that site. So that's referred to as the listing fee model and LinkedIn has heavily popularized that. And it works really well in this case because they already have a very, very large user base, right? There's a very large consumer base that can then access those jobs. So you can actually post that you're looking for work or you can post that you have a job opening as well. The next one is selling consumer data, so with all these networks and all these sort of online groups where people get together such as Facebook. Facebook as a company can then sell data about the consumers that are logged in. So there is a certain amount of data that's captured and that data can be sold to third parties for them to either do research or for them to access some content based upon the viewership at Facebook. Next one is called a freemium model. So it's sort of a twist on the word premium and you see this very often with games and sometimes with apps as well. There is a certain standard version that is free, but there also is another version which you have to pay for. So for example, if you want to play a certain game, like Angry Birds for instance, the basic game is free, you can download, you don't have to pay for it. But if you want added features, if you want to play a specific type of a game then you have to pay for that premium or freemium model, right? So part of it is free, part of it is revenue source for the company. Next one is very interesting and this has become more and more popular these days which is called crowdsourcing or also crowdfunding. And Kickstarter, you can see the logo here is one example, of a company like that. Where what happens is you put up an idea for which you need funding. You need capital for that idea. And you put it out their on the website. There are other companies like Indiegogo that does something very similar. You put your idea on the website and consumers themselves can become supporters. So they can support your idea, they can say, yes, I'll give a certain amount of money. There's a range of possibilities. And then once you get a certain amount of money, you can then launch the product because you raised the capital that you need. And the people who've sign up to be your supporters can then get the product that you're creating. So that's the crowdsourcing or often referred as crowdfunding model as well. Another one is something called no frills model. Now this is essentially selling a physical good or a service but with a very specific attribute to it. The cost of this is dramatically reduced to make it available to a large group of people. And we've seen this example before of the Indian car manufacturer Tata that created a product called the Nano. This is a car that cost about $2000 to $2,500 and it is available in the Indian market. So this is one example where they cut back on manufacturing costs, they cut back on all amenities and made this a highly highly affordable vehicle for the population. Another example is the airline Southwest, what they have done is they've put in a series of very unique features and functions into their services to make sure that they keep the costs low for the airlines. For example, one of the things Southwest Airlines does is that all their aircrafts are exactly similar which cuts down maintenance costs of those aircrafts dramatically. So that's one example of sort of a no frills model of business. Another one is, this applies to digital content, which is the in-app commerce. Again, so you can buy a certain app and then for additional services, this is very popular in games for instance. And you might get the game for free but as you play the game, as you get into it more and more, you have to make certain purchases, which are called in-app purchases. So you go into the app, then to unlock certain feature sets, you might need to pay a certain amount of money. So that's how the revenue is generated inside the app itself. And finally the last one, this was started by a company called Groupon. And what happens in this case is they bring large number of buyers and sellers together, right? So you sign up for certain coupons and what happens is the seller, the company that has a certain product, they're able to get a large number of buyers. The buyers actually get a certain discount they wouldn't have gotten otherwise, simply because there is a high volume in this case. So that's referred to as the Groupon model. So, what we've seen today is we've seen about 16 different kinds of business models that are out there. What's important for people to figure out is, if you are coming up with a new innovation, could be a product, could be a service, think carefully about, what sort of business model best makes sense? Should it be something that people subscribe to? Should it be something that they outright buy? What is the channel by which you get this out there? Should you have a specific distributor? Or should you have your own store? Should it be partly online, partly offline? So these 15 or 16 different models of business, of revenue generation, can be just some of them that you can think about. And keep in mind also that it doesn't have to be just one of these. It could be a combination like certain things could be sold online, certain things could be sold in the store. There could be hybrid versions of these models as well. So these are just some of the business models that you can think about as you come up with your own innovation as well. Thank you.
