-
E-Business Model Design,Classification, and MeasurementsMaqali
Dubosson-Torbay Alexander Osterwalder Yves Pigneur
Executive Summary"Busitiess model" is one of the latest
bttzzwords in the Internet and electronic businessworld. This
article has the ambition to five this term a more ri^jorotis
content. Theobjective is threefold. The first objective is to
propose a theoretical e-business modelframework for doittg business
in the Internet era. The second is to propose a multidi-mensional
classification-scheme for e-Business Models, as opposed to the
actual ten-dency in academic literature to use two-dimensional
classifications. The final objec-tive is to define critical success
factors, based on afield study in order to find out andcompare the
performance indicators used by e-business firms that are competing
withsimilar business models. 2002 John Wiley & Sons, Inc.
INTRODUCTION
-here have been several attempts to classify all the business
models consistentlyemerging with the coming of the New Economy in
order to understand how e-companies are making or not making money.
Some companies have seen theirbusiness model highly publicized such
as tlie reverse auction model of Pricelineor online grocery model
of Peapod. But is it all so clear? For instance, ebay.commight be
typical of an Agora B-Web (Tapscott et al., 2000), but at the
sametime, ebay.com might be considered as being a merchandiser
online (transac-tion.net) or an auction broker (Rappa, 2001). All
of them are considering thesame object, but from different
perspectives. Is there a better or a worse way toclassify the
business models? Are they allowing comparisons? Do they help
tounderstand the strategies of the different actors within a same
category, forinstance, the online grocery stores? Are they
explaining why some of them ben-efit from better fmancial
figures?
Nowadays, new business models finished emerging in electronic
commerce andcan become a major stake in the e-business game
(Kalakota, 1999; Maitre &Magali Dubosson-Torbay is a researcher
in operation management at the University of Lausanne,Switzerland.
Alexander Osterwalder is a Ph.D. student in information systems.
Yves Pigneur is aProfessor of Information Systems at the University
of Lausanne.
Tliundcrbird Iiitcrnarional Uusincss Review, Vol. 44(1) 5-23
January-February 2002 2002 Jolin Wiley & Sons, Ine. c
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Magali Dubosson-Torbay Alexander Osterwalder Yves Pigneur
Aladjidi, 1999). It is even possible to patent them in some
countries(Pavento, 1999). Understanding the new business models and
help-ing to design and measure them are important research issues,
not sowell covered until now.
The next section presents a definition and tiie components of a
busi-ness model as a new fi^amework. The section following suggests
usingthis fi'amework to classify and compare business models.
Finally, weshow through examples how to translate the core
processes of thebusiness models into a set of relevant measures for
each componentof the adopted framework.
E-BUSINESS MODEL DESIGN
Several authors show that with the success of Information
andCommunication Technologies (ICT)-particularly the
Internet-orga-nizational transformations are taking place in
industries and compa-nies (Martinez, 2000; Tapscott et al., 2000;
Timmers, 2000). Thee-Business Model approach we propose in this
article should help afirm structure its organization in a way that
it becomes more efficient,more flexible, and responsive to customer
demand, to forecast possi-ble fiature scenarios and therefore, to
stay competitive in the Internetera. E-business modeling has
similar goals to enterprise modeling ingeneral. Modeling helps
firms develop business visions and strategies,identify and assess
business opportunities, redesign and align businessoperations,
share knowledge about tiie business and its vision andensure the
acceptance of business decisions through committingstakeholders to
the decisions made (Persson & Stirna, 2001).
Figure ]L. E-Business Model Decomposition
(2) CustomerRelationship
value for
Get a FeelServing
Branding
(1) ProductInnovation
resourcesfor
Target CustomerValue Proposition
Capabilities |
(3) InfrastructureManagement
1 Resources/Assets
1 Activities/Process1 Partner Network |
(4) Financial Aspects
Revenue Profit 1 Cost
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E-Business Model Design, Classification, and Measurements
A business model is nothing else than the architecture of a firm
andits network of partners for creating, marketing and delivering
valueand relationship capital to one or several segments of
customers inorder to generate profitable and sustainable revenue
streams.
Our e-Business Model framework is therefore divided into four
prin-cipal components. (1) The products and services a firm offers,
repre-sents a substantial value to a target customer (value
proposition) andfor which he is willing to pay. (2) The
relationship capital the firmcreates and maintains with the
customer, in order to satisfy him andto generate sustainable
revenues. (3) The infrastructure and the net-work of partners that
are necessary in order to create value and tomaintain a good
customer relationship. And (4) the financial aspectsthat can be
found throughout the three former components, such ascost and
revenue structures.
Product InnovationThe product component of the e-Business Model
framework describesthe value a firm wants to offer its customers.
Significant studies of tlietargeted customer segments have to be
undertaken in order to find outdie relevance and die components of
an effecdve value recognidon bythe customer. To deliver this value
proposition, the firm has to possessa certain set of in-house
and/or outsourced capabilities.
Value PropositionThis element refers to the value the firm
offers to a specific target cus-tomer segment. ICT have had their
most important impact on newways of creadng and deUvering value,
for example, through substandalcost savings thanks to
dis-intermediation (Benjamin & Wigand, 1995).Dell for example,
has revoludonized the computer industry by direcdyselling to its
customers over the Internet. Customization is anothercommon value
proposidon enabled by the rapid development of ICT.Through mass
customizadon (Piller et al., 2000) and through rule-based
one-to-one personalizadon or collaboradve filtering, firms
canpropose value tailored to the profile of every single customer.
Whereasdie shoe company Customatix.com lets its customers design
their ownfootwear, Amazon.com proposes books according to their
customerstaste. The nodon of infomediation describes the
re-intermediadon-pro-cess in the Internet era. ICT has enabled the
creadon of a wide rangeof new and innovadve mediadon services
(Sarkar et al., 1995).
TargetA firm generally creates value for a specific customer
segment. Thedefinidon of the market scope (Hamel, 2000; Afliah
& Tucci, 2001)Thunderbird International Business Review
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Magali Dubosson-Torbay Alexander Osterwalder Yves Pigneur
ICTofferawhole newrange of oppor-tunities toexploit
existingcustomer rela-tionships by get-ting a feel forthe
customer'sdesires...
8
captures the essence of where the firm does and does not
compete-which customers, which geographical areas, and what product
seg-ments it markets. A firm can market either to businesses and/or
indi-viduals, commonly referred to as business-to-business (B2B)
andbusiness-to-consumer (B2C). With the expansion of reach by the
useof ICT, differentiated strategies for different geographical
regionsbecome an important issue even for small firms.
CapabilitiesTo deliver the value proposition to different
customers, a firm mustensure that it possesses the range of
capabilities that underpin theproposed value. For example, if Intel
wants to offer to its customersfast microprocessors, the company
has to have access to high-qualityresearch and development
(R&D), product design, and manufactur-ing capabilities. Whether
Intel wants to perform these tasks in-houseand/or in collaboration
with other firms is a strategic decision, whichis further detailed
in the infrastructure component of the e-BusinessModel
framework.
Customer RelationshipThe importance of customer relationship
potential is often forgotten inother business model approaches that
are mainly focused on products,value creation processes and
exchange patterns between differentactors. However ICT offers a
whole new range of opportunities toexploit existing customer
relationships hyettini a feel for the customers'desires, serving
them and developing an enduring relationship withthem.The notion of
branding has also evolved from product and com-pany marketing to
include relationship capital (Tapscott et al., 2000)which
emphasizes the interaction between the firm and the customer.
Getting a Feel for the CustomerThis element refers to all
customer information and knowledge a com-pany can gather and
exploit, in order to discover new and profitablebusiness
opportunities and customer segments and to improve
theirrelationships with their customers. These insights can be used
through-out marketing and sales, and especially for customer
relationship man-agement (CRM). Hamel (2000) calls this the
positive feedback effect.A firm with a large base of users, and a
way of rapidly extracting feed-back and information from those
users, may be able to improve itsproducts and services faster than
its competitors. In this virtuous circle,products and product
innovation can be improved, which, in return,attracts new
customers. In addition to product improvement, a betterknowledge of
its customers allows a firm to establish a personalizedrelationship
tailored to the needs of every single customer.
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E-Business Model Design, Classification, and Measurements
Serving the CustomerServing the customer includes fulfillment,
support, and CRM. Afirm must ask itself how it wants to deliver
additional value to its cus-tomers and what support and service
level it wants to provide.Fulfillment and support refer to the way
the firm "goes to market"and how it actually "reaches" customers
(Hamel, 2000). A firmmust define its channel strategy and
understand that the Internet hasa great potential to complement
rather than cannibalize its business(Porter, 2001). At the
front-end, the Internet plays an importantrole in customer support
and customer relationship management. Itcan make many of these
processes more efficient by supplying thecustomer with a wide range
of basic information on products, prices,and availabiUty and by
offering customized real-time information(i.e., delivery status,
product lifecycle management). The expressdelivery company Federal
Express (FedEx), for example, lets its cus-tomers track their
shipments onhne. This substantially increases theservice value for
the customer and is an important relief for FedEx'scustomer call
center.
BrandingThis element of the e-Business Model framework has not
lost itsimportance in the era of the Internet, but it has
profoundly changedits definition. Tapscott et al (2000), for
example, think that adver-tising, promotion, publicity, public
relations and several otheraspects of corporate communications are
becoming archaic con-cepts. Branding shifts towards relationship
dynamics (Hamel, 2000)where emotional, as well as transactional,
elements in the interactionbetween firm and client form the image
of a company. It's the firm'sability to engage customers,
suppliers, and other partners in mutu-ally beneficial value
exchanges that determines its relationship capi-tal (Tapscott et
al., 2000) and brand. The Online auction companyeBay.com for
example, owes its brand name and customer loyalty toits ability to
assure smooth and beneficial transactions between pri-vate
auctioneers and to its trust mechanisms that establish confi-dence
between all involved parties.
Infrastructure ManagementIn the product component of the
e-Business Model framework, wehave described the capabilities that
are needed in order to create anddeliver the value proposition. The
infrastructure componentdescribes the value system configuration
(Gordijn et al., 2000) that isnecessary to deliver the value
proposition; in other words, the rela-tionship between in-house
and/or partners' resources., assets, andactivities and a
network.
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Magali Dubosson-Torbay Alexander Osterwalder Yves Pigneur
. . . shrinkingtransaction costsmake it easierfor firms to
verti-cally disintegrateand to reorga-nize into
partnernetworks.
10
Resources/AssetsIn order to create value, a firm needs resources
(Wernefelt, 1984).Grant (1995) distinguishes tangible, intangible,
and human assets.Tangible resources include plants, equipment, and
cash reserves.Intangible resources include patents, copyrights,
reputation, brands,and trade secrets. Human resources are the
people a firm needs inorder to create value with tangible and
intangible resources. In thenetworked economy, firms increasingly
concentrate on their corecompetencies and separate themselves from
all resources and assetsthat do not belong to their core
business.
Activity and ProcessesThe main purpose of a company is the
creation of value that customersare willing to pay for. This value
is the result of a configuration of insideand outside activities
and processes. To define the value creation pro-cess in a business
model, we use the extension of the value chain frame-work (Porter
& MiUer, 1985) as defined by Stabell & Ffeldstad
(1998).They extend the value chain with the value shop and the
value network.Former describes the value creation process of
service providers (suchas hospitals or consulting firms), whereas
tiie latter describes brokeringand intermediary activities (such as
banks or phone companies).
Partner NetworkThis element of the e-Business Model framework is
closely tied to thevalue proposition and the value creation
process. The partner networkdetails how the value creation process
is distributed among the partnersof the firm. In the product
component it was all about what value todeliver. In this element it
is about how to create value with a network ofpartners. Management
literature defines strategic networks as
"stableinter-organizational ties which are strategically important
to participat-ing firms. They may take the form of strategic
alliances, joint-ventures,long-term buyer-supplier partnerships,
and other ties" (Gulati et al.,2000). As has been explained above,
a shtinking transaction costs makeit easier for firms to vertically
disintegrate and to reorganize into partnernetworks. Firms can
focus on their core competencies and activities inthe value
creation process and rely on partner networks for other non-core
competencies and activities. In e-business Uterature there are
sever-al terms atising for tiiese new forms of strategic networks
in the valuecreation process, such as b-webs (Tapscott et al.,
2000) and value net-works (Nalebuff & Brandenburger, 1996).
Financial AspectsOf course, the financial perspective also
belongs in our e-BusinessModel framework. But rather than
qualifying financial aspects such
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E-Business Model Design, Classification, and Measurements
as the revenue or pricing model of a firm as the unique and
mostimportant element of a business model, we consider them as
thefourth component and as the consequence of the
formerlydescribed. Financial aspects can be understood as costs
required toget the infrastructure to create value and as revenues
of sold value.The difference between revenues and costs determines
the prof-itability of a company.
RevenueThis element measures the ability of the firm to
translate the value itoffers to its customers into money and
therefore generate incomingrevenue streams. A firms revenue model
can be based on subscrip-tion costs and fees from the customer,
advertising and sponsoringrevenues from other firms, commissions
and transaction cuts fromprovided services, revenue sharing with
other firms, and by simplyselling a product. Firms selling over the
Internet should consider anappropriate pricing strategy and pricing
mechanism in order to max-imize revenues. First they have to be
aligned with the nature of theproduct. For example, an airplane
engine price is set differently thanthe price of an electronic
camera. Second, they have to aim at achiev-ing the highest price
the customer is willing to pay for the offeredvalue. It is
important to mention that ICT have had an importantimpact on
pricing and have created a whole new range of pricingmechanisms
(Klein & Loebbecke, 2000).
CostThis element measures all the costs the firm incurs in order
to create,market and deliver value to its customers. It sets a
price tag on all theresources, assets, activities, partner network
relationships, andexchanges that cost the company money. As the
firm focuses on itscore competencies and activities and relies on
partner networks forother non-core competencies and activities
there is an importantpotential for cost savings in the value
creation process. The right useof ICT in customer relationship also
opens up new opportunities fordelivering premium customer services
and therefore additional valueat reasonable costs.
ProfitThis element measures the ability of a firm to create
positive cash fiow.
ComparisonFew authors have attempted to give the term electronic
businessmodel a more precise and global content. Even though the
litera-ture on e-Business Models is growing, most of it only
partially dis-
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Magali Dubosson-Torbay Alexander Osterwalder Yves Pigneur
cusses the subjects of interest. Afuah & Tucci (2001) for
example,seem to neglect the customer component of a business
model.Gordijn et al. (2000) demonstrate the value creation process
in anetwork of partners, but do not describe any of the other
neces-sary components for a complete model from a business point
ofview. Hamel (2000) however, has quite a complete approach
tobusiness models.
In Table 1 we compare the existing e-Business model literature
andtheir components to the e-Business model framework presented
inthis article.
Table 1. E-Business ModelBusiness Models
a
ctio
ion
) Pro
duIn
nova
t
0 g(A 0
3 1
nan
cia
12
Target Customer
Value Propostion
Capabilities
Get a FeelServing
Branding
Resources/Assets
Activities/Process
Partner Network
Revenue
Cost
Profit
LiteratureComparison with Literature Review
Aflih& Tucci (2001)Scope
Customer value(differentiation,low cost)
Capabilities,implementationConnected activities
Pricing strategy(selling), revenuesources
Sustainability
Thunderbirc
Hamel (2000)Scope
Business missiondifferentiation
Information and insightFulfillment and support.customer
benefitsRelationship dynamics
Core competencies.strategic assetsCore
processes.configurationValue network.Company boundariesnetwork
Pricing structure
Profit boosters
International Business Review
Gordijn (2000)Actors,market segmentValue offering
Value activity
Stakeholdervalue interfaces,value ports
Value exchanges
Value exchanges
anuary-February 2002
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E-Business Model Design, Classification, and Measurements
IllustrationAs an illustration of the formerly discussed
e-Business model frame-work, we decided to focus on and to compare
two Internet-auctioncompanies, Ricardo and eBay. First, Ricardo,
the German auctionenterprise, can be described by the following
characteristics:
Customer: Ricardo says that it has a total commitment to
cus-tomer satisfaction and quality. It has earned an award for
beingnotably customer-friendly. It has expanded its offerings
bylaunching RicardoBIZ, a B2B e-commerce portal with the
tra-ditional auction format, the reverse auction format and
barter-ing and mixed auctions.Product: Ricardo created customer
awareness by original auc-tions such as the Steffi Graf's French
Open racket in aid of the"Children for Tomorrow" trust, diving
cruises by submersibleto see the Titanic, or Ricardo shares donated
to UNICEF.Witliin its partnership with SAT 1 TV, it combines
classical showelements with die online auctions and it has
announced tlielaunch of QXL.tv, a new service to deliver auction
programmingvia television and Internet. Ricardo also launched a
worldwideexclusivity: the live auctions where up to 8,000 users can
partic-ipate simultaneously. From February 2000, all auctions up to
dievalue of DM 250 will be insured and there will be a trustee
ser-vice for aucdons valued over this limit. Ricardo wants to
offerthe highest level of security and the largest range of
products.Infrastructure: Ricardo has concluded a strategic
cooperationagreement with Impress Software in the area of B2B
onlineauction in order to integrate exisdng ERP customer
systems.This will be the standard software soludon SAP R / 3 .
This brief descripdon of unbundling Ricardo into its three
compo-nent businesses can then be compared to a similar descripdon
for itsAmerican counterpart, eBay:
Customer: eBay focuses on convenience by means such asonline
tutorials, a four-step process or the possibility of cus-tomization
of the service. Regular sellers can establish a repu-tadon for
reliable delivery and quality through a rating andcomment system
based on the experience of customers. This isconsidered by eBay as
way to create "stickiness." eBay's mar-keting and customer
acquisition costs are lower than most sitesbecause of the powerful
word-of-mouth effect.Product: As Ricardo, eBay also tries to
attract the attentionfrom the media by auctioning for instance, a
team of pro-
13Tluinderbird International Business Review January-February
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Magali Dubosson-Torbay Alexander Osterwalder Yves Piflneur
grammers, a kidney, or the camera of the director of the
BlairWitch Project. It has launched eBay Business Exchange
servic-ing the small business market (B2B). It has also launched
eBayAnywhere, that aims to make eBay accessible from
anyInternet-enabled mobile device.Infrastructure: eBay acquired
Billpoint, an online paymenttechnology firm in 1999. On March 1st,
2000, it announced astrategic alliance with Wells Fargo, designed
to address theexploding need for an online person-to-person
payments plat-form. Together, they have launched a new payment
option, the"Electronic Check," that combines the convenience and
safetyof paper checks with the speed of the electronic payments.
eBayhas selected Sun Microsystems as its premier supplier of
servers,software and professional services. For its shipping
service, eBayhas concluded a strategic deal with Mail Boxes Etc.
and its net-work of more than 3,000 centers across the country, and
withiShip.com and its online shipping, pricing and tracking
solu-tions. It has also concluded a strategic parmership with
e-stamp.com to promote e-stamp as an exclusive provider of
U.S.Postal Service Internet postage.
Considering the two cases, none focuses on infrastructure but
relymore on partners for their infrastructure, especially eBay with
alarge network including diverse industries. Ricardo seems to
bemore innovative in terms of product offerings with its live
auctionsand with its willingness to combine other technologies such
as TVand mobile devices with the Internet. Both want to attract new
cus-tomers with original auctions.
E-commerce corresponds to the use of inter-networked computersto
create and transform business relationships, in particular,
thetransactions and interaction between the company and its
con-sumers. As stated by Hagel & Singer (1999), today, due to
elec-tronic networks, we are on the verge of a broad, systemic
reductionin interaction costs throughout the world economy. For
them, it isunlikely that one company will be able to do all three
businessesand still continue to increase its profits over the long
haul.According to them, "because electronic commerce has such
lowtransaction costs, it is natural for Web-based business to
concen-trate in a single core activity." From the Ricardo and eBay
compar-ison, it is not so obvious to tell which core activity they
arefocusing. At least, we could find out on which core business
theyare not focusing (i.e., infrastructure, because of their vast
array ofoutsourced activities).
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E-Business Model Design, Classification, and Measurements
CLASSIFYING E-BUSINESS MODELS
Our second preoccupation is to categorize business models and
topropose a limited number of generic business models. Several
classi-fications have been proposed in the literature.
Most authors suggest two dimensions in order to rate the
businessmodels: fi.inctional integration and degree of innovation
(Timmers,1998), economic control (both hierarchical and
self-organizing) andvalue integration (Tapscott et al., 1999), type
of relationships anddegree of externality (Amami & Thevenot,
2000), power of sellersand buyers. Based on their classification,
they propose to keep a lim-ited number of basic types of business
models: from 5 for Tapscott(1999) to about 30 for Rappa (2001).
This diversit)' shows the inad-equacy of a unique classification
scheme.
Therefore, unlike the hierarchical "decomposition and
specialization"structure adopted by the Process Handbook (Malone et
al., 1999), wepropose first to use a multicategory approach and to
accept that abusiness model could be positioned with regard to
several dimensions,in a web of many classification schemes. The
business models ofPriceLine could be considered for example as an
"Agora" in theTapscott's classification (1999), high
(self-organizing) on the controlaxe, low on the value integration;
as an "e-auction" in the Timmers'classification (1998), medium on
the functional integration and medi-um (to high) on the degree of
innovation.By our literature review, we identified as principal
dimensions for clas-sifying the business models:
The user role: How is the client or the prospect considered
bythe company.^ As a client or as a provider of a
product/servicethat other clients may want to buy from, or as a
participant towhom nothing is sold, but information or services are
offeredagainst information about the participant.''
Interaction pattern: Is the service provided by one or
manypeople/companies to one or many people/companies.' ForTimmers
(1998), "many" must be understood as many actorsfrom which
information is being combined.
Nature of the offerings: Is the company offering
information,services or products to its visitors.^ In some cases,
the companyis giving away its content for free against information
gather-ing and/or is getting money from ads. Another option couldbe
that the company does not want to sell on the Web but justwants to
use its site as a promotion tool.
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Maflali Dubosson-Torbay Alexander Osterwalder Yves Pigneur
Pricing system: Is the user paying according to its usage rate,
toa fixed subscription to get access to the service, to a fee
system(percentage or fixed amount), to a price list or to a
dynamicprice mechanism (i.e., auction and reverse auction)? One
lastoption is that the user does not pay for the service
(Baatz).
The level of customization: This level is ranging from
masscontent to customized content.
The economic control: It goes from self-organizing (no
singlecompany drives the content of its transactions or the
econom-ic outcomes) to hierarchical (some Webs have a boss who
con-trols the content, the pricing, and flow of
transactions)(Tapscott et al., 1999).
Table 2. E-Business Model
Business Models
8 s
rodu
clo
vatic
Target Customer
Value PropostionCapabilities
ton:
nsh
2) Cu
sRe
latio
stru
ctur
eem
ent
(3) In
fraM
anag
n _
(4) Fi
nan(
Asp
ects
Get a FeelServing
Branding
Resources/Assets
Activities/ProcessPartner Network
RevenueCostProfit
Classification
Comparison with Literature ReviewFrom LiteratureReviewUser
RoleNature of the offeringsValue/cost offeringsDegree of
innovationScale of trafficRequired security
Level of CustomizationPower to buyer/sellerInteraction
pattern
Economic controlValue integration
Pricing system
Timmers (1998) Tapscott (1999)
Degree of innovation
Interaction pattern
Economic controlFunctional integration Value integration
16 Thtindcrbird International Business Review January-February
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E-Business Model Oesign, Classification, and Measurements
The level of required security to monitor and verify purchasesin
your system.
The level of value integradon: Some Webs facilitate the
creadonand the delivery of specific product/service offerings that
coher-endy integrate components from muldple sources. In
contrast,other webs provide low value integradon and do not change
thenature of the products actually offered (Tapscott et al.,
1999).
The value/cost offerings: Is the product offerings more
posi-doned as an added value product/service or as a low-cost
low-price proposal?
The scale of traffic: Does it require significant site traffic
or isit viable with a moderate traffic site.^
The degree of innovation: It varies from essendally an
elec-tronic version of a traditional way of doing business to
moreinnovative ways, for instance, by offering funcdons that didnot
exist before (Timmers, 1998).
The extend to which power is more on die buyer or the seller
side.
Readopdng the framework presented in the first part, we
classifiedthese different dimensions usually used for classifying
business mod-els as well as the Timmers' and Tapscott's
dimensions.
EoUowing this framework and some of its classiiicadon
dimensions, wecan tell, for instance, that eBay, as an auction
service, sets the price witha dynamic process depending on the
number and the interest of thepotendal buyers. Then, small business
took the opportunity providedby eBay to offer their goods on die
Internet. At last, eBay decided toexpand its service to meet the
needs of the small business market, tar-gedng businesses with less
than 100 employees (B2B). In the eBaybusiness model, the user can
be the provider as well as the client. As asecondary source of
revenues, eBay offers the possibility to buy somespace for posdng
adverdsements or to host die links to other sites. Itprovides value
through an integrated full-service shipping service andtechnology
for person-to-person payments through the Internet.Moreover, the
level of customization of eBay is quite high with featuressuch as
my eBay.
MEASURING OORE PROCESSES
Designing and managing a business model requires a
measurementsystem that identifies the key factors and indicators
(Rockart, 1979)by which the success of the company and its business
model can beassessed. To appraise a business model and elicit the
requirements of
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Magali Dubosson-Torbay Alexander Osterwalder Yves Pigneur
its measurement system, it is appropriate to determine these
factorsaccording to the four components of the adopted
framework:Product, Customer, Infrastructure, and Finance.
This proposed framework had to be confronted with empirical
datafrom e-business companies. We decided to focus on two
industries:the online groceries and the auction companies. Four
companiesfrom both sectors were chosen, two from Europe and two
from theU.S. The online grocery stores included Le Shop
(Switzerland),Ooshop (France), Peapod and Streamline; the auction
firms com-prehended were Ricardo (Germany), iBazar (France),
Priceline, andeBay. For all except Ooshop, we used the information
disclosedpurposely by them (i.e., information you can find on their
Websiteor information disclosed for financial purposes such as SEC
files).
We suggested characterizing each business model with a set of
mea-sures using a balanced scorecard approach. Kaplan & Norton
(1992)introduced the idea that a measurement system has to reflect
a bal-anced view of the organization's objectives in four areas
which pre-cisely correspond with the four components of our
framework. Thesefour areas are unified in an integrated and global
strategy that can beexpressed by a cause-effect relationship.
These areas are:
Product measures that assess the originality of the value
propo-sition and identify what the organization has to build for
learn-ing, long-term growth, and innovation (creativity,
employeecapabilities, motivation, turnover, stock options).
According toHagel (1999), in e-business, measuring human talent
andspeed on the market seems to be crucial.
Customer measures that evaluate the relationships of the
orga-nization with its customers (retention, acquisition,
satisfaction,and profitability) and the appreciation of the value
propositionby the customers (functionality, quality, price,
timeliness,brand image, availability, and shopping experience).
Accordingto Hagel (1999), in e-business, measuring economy of
scopeand customer satisfaction is essential.
Infrastructure measures that identify the internal and
out-sourced activities of the value chain and processes with
thegreatest impact on customer satisfaction and financial
objec-tives (design, build, delivery, and service). Still,
according toHagel (1999), in e-business, measuring economies of
scale andefficiency are key for this aspect of the framework.
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E-Business Model Design, Classification, and Measurements
Table 3. Measures for E-Business CompaniesAuction Online
retailers(Case Studies) (Case Studies)
Council forCIOs (1999)
TargetCustomer
# of customers# of registered users% of Internet users# of
countries/areasMarket shareRanking on markets# visitors per day
#of cities servedMarket share# of customer orders# of consumer
goodsclients# of customerscategories of products
Penetration rateNumber of uniquevisitors per month
ValueProposition
# of languagesAverage value of goods# of currenciesNew
products/serv.# products on sale# of merchants
% of fresh products# of products offered
Average days ofexclusivity for productintroduction or
majorfeatureAverage time betweensite relaunches
I Capabilities I48 hour delay betweenpick up/deliveryDelivery
timing
% of on-line ordersshipped within 24hours
# of individuals that getconnected at least oncea
monthConnection timeCustomer loyaltySpending per daySpending per
day# of new customersPurchase intent
# of not satisfiedcustomersBuying frequencyConversion rate
torepeat customersAverage order sizeAverage order size% of repeat
customers# of clicks
Get a Feel
% of on-line salesabandoned beforecompletion% of 1st time
visitorswho return to sitewithin 1 yearAverage time betweenvisits%
of customers whohave personalized theirinterfacesSales conversion
rate% of customers forwhich company cantrack profitabilityacross
business units% of customers withcurrent email addreses
Customer supportpersonnel
One-hour problemresolution% late deliveries
if51
Serving
% of returningcustomers who arerecognized and sentpersonal
contentAverage time torespond to customerrequestTime to match
competition's websitefeature roll-out# of customer-request-ed
features added perupgrade
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Maflali Dubosson-Torbay Alexander Osterwalder Yves Pigneur
Table 3. Measixres for E-Business Companies icontinued)
Auction(Case Studies)
Online retailers(Case Studies)
Working Council forCIOs (1999)
BrandingAwareness levelSales and marketingexpensesAttreaction of
media# of referrals# of people told byone customer
Marketingexpenditures%of click throughReliable delivery
% or orders correctlyfulfilled% of orders delivered tocorrect
address
Resource/:Assests
isII
Activities/Process
PartnerNetwork
# of trucks# of fulfillment centers
% of documents used byknowledge workersavailable on-line% of
employees accessingIntranet at least daily
Answer timeSystem capacity# of transactions per day# of users in
liveauctions (capacity)
Out-of-stock positions# of orders processed# of transactions per
daydayLogistics capacity
Order confirmation cycletime% of products that
arebuilt-to-orderCash conversion ratioInventory turns/yearInventory
levelsBid-to-cash cycle timeAbility to handleadditional
trafficNetwork uptimeAverage time to load apage
4 day delivery (partner)# of partners
Revenues fromaffiliates programLogistics
capacity(outsourced)
Revenue
I ^ Cost
Revenue breakdown byproduct# of page impressionAdvertising
revenuesRevenue growthValue of goods traded
Advertising, researchand marketingrevenues
Subscription feesRevenue growth# of products sold
Administration costs Operating expensesInvestmentsCost
structure
Net assets needed tosupport $1 worth ofoutput
Net profit/lossGross profit margin
Operating profit/lossNet profit/loss
Free cash flowWorking capitalReturn on investedcapital
financing Market capitalizationShare price
Share priceNet proceeds of IPO
20 Thunderbird International Business Review JanuaryFebruary
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E-Business Model Design, Classification, and Measurements
Finance measures that serve as the focus for the objectivesand
the measures of all the other perspectives and concernrevenue
growth, cost management, asset utilization andmarket
capitahzation).
Following the BSC approach, the Working Council for
ChiefInformation Officers published a report showing the different
met-rics for e-business performance evaluation used by companies
such as3M, Dell Computer Corp., Federal Express and L.L. Bean
(1999).From the analysis of the same group of eight companies
belonging tothe online grocery and auction industries, we
identified a set of mea-sures related to the different components
of our framework and theirrelated issues.
The measures identified in the Working Council of CIOs report
andthe measures found in our case studies could be summarized
againwith the adopted framework.
CONCLUSION AND FURTHER RESEARCH
The deliverable of this research should be a refined
e-BusinessModel framework, integrating a measurement system, the
annota-tion of the selected business models with their critical
success fac-tors and key measures. Our study consists of a first
version of thekey success factors and balanced scorecard measures
of severalcase studies.
Further research in progress, based on this article, is a field
studyfor observing, analyzing, and cataloging typical business
models ina knowledge base. The final objective would be to
computerize thisbase and to specify a decision support system for
helping businessmodel creators design, critique, and simulate new
business models.Since the future in this area is so uncertain
(Courtney et al., 1997),a scenario-based forecasting approach could
be helpful beforedefining a strategy of adoption, deployment, and
management of abusiness model.
Simulation based on the e-Business model framework could
helpanswer to the following questions, proposed by Warren
(1999):Why has the historical performance of my business followed
thetime-path that it has.> Where will the path of future
performancetake us if we carry on as we are.' How can we alter that
future forthe better?
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Maaali Dubosson-Torbay Alexander Osterwalder Yves Pigneur
The outcomes of this article should help the managers design a
newbusiness model by using the suggested framework and by which,
ask-ing the right questions, such as what is exactly my value
proposition!"How do I get a good feeling of the needs of my target
market.'' Todeliver the intended added-value to the market, what
would be therequired and most appropriate resources and
assets.'
By taking the various identified dimensions to classify and
define newdimensions for the ones that are missing for some
components of theframework, the managers should be able to
differentiate its businessmodel from the competition and take
advantage of their core com-petencies. This approach presents the
great advantage of using a mul-tidimensional framework.
Finally, identifying a set of measures for each of the four
componentsshould help the e-Business company manage and control its
activitiesand outcomes. It should also contribute to monitor the
performanceof the competition and find new ways for keeping ahead.
In this arti-cle, we described some measures that could be applied
to differentcompanies and activities, and help define new ones
tailored to theparticular conditions of each company. #
AUTHOR'S NOTE
The information related to Ooshop were collected by
StephatiieDufour, ESSEC student, Paris, 2000. Ooshop belongs to
theCarrefour group. In 2000-2001, Streamline has shut down its
oper-ations. Ricardo has merged with QXL (UK) and iBazar has
beenacquired by eBay.
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