Week 2-Kamilla Flashcards
What is a born digital?
Firms born with a fully digital business model, including what they sell.
What do born digitals rely on?
- Digital infrastructure to: build their communication, collaboration, and computing capabilities so they can create and sell something online
- The world is their market
- Customers can find them by doing a quick search
- Have intellectual and social capital
Born digitals have an identifiable:
- Online presence(in space); and
- A physical footprint( in a place)
What is an example of a born-digital?
- Tiktok
- Shopify
What is NOT a born digital?
- Peloton
- Airbnb
- Casper
Why are born digitals exciting?
- Directly engage with stakeholders
- Highly automated
- Leverage network effects
- Are organizationally flexible
- Scalable (increase the user base, revenue is growing faster than investment)
What is a business model?
- The set of choices made by firms to create value through customer engagement and appropriate subsequent outcomes
- How the organization provides value to the customer
- Describes how the firm does business
- Will change over time and in different directions
Are business models and revenue models the same thing?
No.
- Revenue models is how you bring money into the organization
- Business models is what the business does
What are two types of revenue models?
- Freemium:
- Basic service for free
- Charge for premium
services to paying
members - Ex: Shopify, ChatGPT,
Tinder, Youtube, Canva
- Bait and Hook
- Basic product at very
low cost, even at a
loss(‘bait’) - Charge ‘compensatory
recurring amounts’ for
refills or associated
products and services
(‘hook’) - Ex: Adobe, Printers
- Basic product at very
What is the purpose of the Business Model Canvas?
- Map
- Audit
- Focus on
- Remind
- Communicate
What is Lean Canvas?
- Specific to new firms
- Facilitates early planning processes about the “problem-solution” question
- Helpful when you have no product and no customers
Evaluating the fit between strategy and business models?
- Idling (Business Model: Weak, Strategy: Competive)
- Traction (Business Model: Strong, Strategy: Competitive)
- Breakdown (Business Model: Weak, Strategy: Uncompetitive)
- Faceoff (Business Model: strong, Strategy: Uncompetitive)
Example of Faceoff?
Lyft and Uber and Taxis are in a face off with each other
Example of Traction?
Shopify, Blackberry, Nokia
Basically companies that are doing really well. Or did well at one point.
Example of Breakdown?
Blockbuster, Blackberry, Nokia.
A company that went bankrupt.
Example of Idling?
Blackberry Nokia.
A company that is trying to enter the market again with new ideas.
Focus on the ‘business model’ alone?
You are market-driven!
- Focused on the expressed needs of the customer
- But myopia(lack of imagination) can result
Consider both the business model and competitive strategy?
You are market-driving!
- Trying to understand latent needs
- Definition of latent(if you ask a farmer how many horses he needs to plow a field and he says at least 10. That means you need the equivalent of 10 horse’s power to plow the field, it does not necessarily mean that he needs 10 horses)
The concept of ‘pivoting’
- Business models get refined over time
- Business models get forced to change
What forces business models to change?
- External forces (ex: government regulation, covid)
- By necessity (e.g. outside pressure)
- Under stress
How do business models get refined over time?
Happens through:
- Experimentation
- Learning
- Change
Also:
- By necessity (e.g. lack of traction)
- With intention
Key Points from Zeel
- They knew all aspects of their business model really well
- Allowed for quick decisions without intense planning
- Anyone who tried to slow things down was let go
- Founder/CEO fought the board
- Got creative (e.g. used an investor to run a stretch class (Serena Williams)
Common types of Tech Firms
SaaS(Software-as-a-Service) - often employ machine learning and AI
How is SaaS different from Software(traditional on-premise offering)
- Multi-tenant
- Direct access to cloud-based application
- Release cycle is 6-8 weeks
- Pricing is recurring subscription fees
- Speed of deployment (weeks or days)
- Upgrades are ongoing, frequent
- Browser-based user interface and experience, accessibility across multiple devices helps with customer experience
- Higher cyber security and compliance costs to ensure data privacy and residency
Traditional on-premise offering criteria:
- Single-tenant
- Software installed directly on customers IT infrastructure
- Release cycle is twice a year
- Pricing is upfront license fee as well as ongoing support fees
- Speed of deployment (months)
- Upgrades are scheduled, large-scale, once a year, time consuming and cause significant disruption
- Customer experience: traditional software user interface and experience, desktop-based, single location access
- Baseline cost for product security, access control and compliance with regulations
What it takes for SaaS success?
- Market potential for recurring revenue
- High gross margins
- Distribution that leverages networks and increases switching costs:
1. Increased usage by any user increases the value of the product or service for other users
2. Positive…
Network effects at Google
- Waze: direct network effects
- Android: indirect network effects (more users, more developers, more apps, more users)
- Youtube: two-sided network effect (video creators and users)
- G Suite: compatibility and standards effects (e.g. sharing a Google doc)
- Search: machine learning based on massive network of data
Sharing Economy Services(SES)
Digitally-enables sharing of:
- Physical assets
- Physical assets and labour combined
- Just labour (physical, skilled, intellectual/creative)
SES model examples
- Instacart: local delivery (physical labour)
- TaskRabbit: personal services (physical and skilled labour)
- Etsy: bespoke goods (skilled labour)
Core characteristics of SES?
- Based on the idea that we own too much stuff; have more than we need/use
- SES allows individuals and businesses to share their assets with others, recover the marginal costs of using those assets, plus a portion of the fixed cost of owning them
- SES are ‘thin stack’ companies:
- Link customers in need of a service with suppliers of that service
- Operate through a digital platform or app
- Offer services based on underutilized physical assets and/or labour
What drives SES growth?
- Digitalization (lower transaction costs)
- Millenials (place more value on experience than owning goods)
- VC investment
- Positive impact on sustainability and the environment
What does an SES need over the long term?
- Direct network effects (each additional user makes the network more valuable to others)
- Two-sided network effects (more sellers attract more buyers, and more buyers increase the value of the SES firm)
- Economies of scale (ex: Poshmark, Canadians cannot sell in America, which limits the user base)
- An ability to control switching costs (or at least, absorb them)
3D printing
- Cost has lowered
- Accuracy has gotten better
- Ethical standards
- FDA approvals
- Technology(hardware) is expensive
- Time commitment(printing process, human)
- Customization
- Automation
Company: Materialise
- 3D printing firm based in Belgium
- Founded in 1990
- Built technology to print 3D BUT existing software was nonexistent, so they needed to find a solution
- Created software for customers to easily use (now their core advantage)
- Founder calls it a slow revolution
- Now serving software, manufacturing, medical
Reading: Braun Summary
- Strategy and business models represent 2 separate, yet interrelated aspects to a company’s success
- But managers put more emphasis on one over the other (risking their long-term viability and success)
- Their framework considers both their firm’s strategy and its business model at the same time to achieve long-term competitive profitability
