Types of Innovation Product and Service Innovation Process

Types of Innovation Product and Service Innovation Process Innovation Technology Innovation Business Model Innovation Bob Higgins, founder and managing general partner of Highland Capital Partners, is quoted in Johnson, Christensen and Kagermann’s Harvard Business Review article as saying, “I think historically where we [venture capitalists] fail is when we back technology. Where we succeed is when we back new business models. ”

Operating Margin Growth in Excess of Competitive Peers compound annual growth rate over five years 2 [Source: IBM, CEOs are expanding the innovation horizon: important implications for CIOs]

Benefits Cited by Business Model Innovators percent of respondents 3 [Source: IBM, Global CEO Study 2006]

The Power of the Business Model Movies - “Eco. System” Horizontal - Production companies, HBO, Blockbuster [$300 MM in late fees in 2005], Movies on-Demand, Netflix [mail], Netflix pivot to streaming, Apple TV, Google TV, Cable Companies Technology – VHS/Beta, DVD, Blue. Ray, Bandwidth, HD TV, use of internet for entertainment

Competing on Business Model Examples Zip Car - Very short term car rental, subscription, use fees Apple Music - One song at a time, revenues from devices + music, closed system Net. Jets – Fractional ownership Lending Club – Peer to peer lending, end run around bank Google – small & medium sized business do direct, national and international ads, end run around agencies; individuals sell advertising space

Competing on Brand Different than competing on brand A brand is the way a person feels about a product or company A business model is the way the person transacts business with the company Brand or Business Model? Federal Express Southwest Airlines AT&T Uverse

business model framework INFRASTRUCTURE OFFER Key Activities Key Partners CUSTOMER RELATIONSHIPS VALUE PROPOSITION Key Resources/ Capabilities COST STRUCTURE CUSTOMER SEGMENTS DISTRIBUTION CHANNELS FINANCE REVENUE STREAMS a business model describes the value an organization offers to various customers and portrays the capabilities and partners required for creating, marketing, and delivering this value and relationship capital with the goal of generating profitable and sustainable revenue streams 7 [Osterwalder (2004) The Business Model Ontology]

STRATEGY BUSINESS MODEL ORGANIZATION TECHNOLOGY the business model’s place in the company 8

Apple i. Pod/i. Tunes the big picture Key Activities Key Partners Record companies OEMs Cost Structure People Manufacturing Marketing & sales Customer Relationship Hardware design Obsessive brand Loyalty Marketing Switching costs Key Resources People Apple Brand Content agreements Ipod hardware Itunes software Value Proposition Seamless music Experience Search, buy and Enjoy digital music Distribution Channel Retail stores Apple. com Itunes Store Target Customer Mass market Revenue Model Large hardware revenues Some music revenues 9

Value creates revenues Apple i. Pod/i. Tunes Key Activities Key Partners Record companies OEMs Cost Structure People Manufacturing Marketing & sales Customer Relationship Hardware design Obsessive brand Loyalty Marketing Switching costs Key Resources People Apple Brand Content agreements Ipod hardware Itunes software Value Proposition Seamless music Experience Search, buy and Enjoy digital music Distribution Channel Retail stores Apple. com Itunes Store Target Customer Mass market Revenue Model Large hardware revenues Some music revenues 10

Creating value requires infrastructure Apple i. Pod/i. Tunes Key Activities Key Partners Record companies OEMs Cost Structure People Manufacturing Marketing & sales Customer Relationship Hardware design Obsessive brand Loyalty Marketing Switching costs Key Resources People Apple Brand Content agreements Ipod hardware Itunes software Value Proposition Seamless music Experience Search, buy and Enjoy digital music Distribution Channel Retail stores Apple. com Itunes Store Target Customer Mass market Revenue Model Large hardware revenues Some music revenues 11

Infrastructure generates costs Apple i. Pod/i. Tunes Key Activities Key Partners Record companies OEMs Cost Structure People Manufacturing Marketing & sales Customer Relationship Hardware design Obsessive brand Loyalty Marketing Switching costs Key Resources People Apple Brand Content agreements Ipod hardware Itunes software Value Proposition Seamless music Experience Search, buy and Enjoy digital music Distribution Channel Retail stores Apple. com Itunes Store Target Customer Mass market Revenue Model Large hardware revenues Some music revenues 12

Apple i. Pod/i. Tunes the profit zone Key Activities Key Partners Record companies OEMs Customer Relationship Hardware design Obsessive brand Loyalty Marketing Switching costs Key Resources Value Proposition People Apple Brand Content agreements Ipod hardware Itunes software Cost Structure People Manufacturing Marketing & sales Seamless music Experience Search, buy and Enjoy digital music Distribution Channel Retail stores Apple. com Itunes Store Target Customer Mass market Revenue Model < Large hardware revenues Some music revenues 13

Four-Square start-up Key Activities Key Partners Cost Structure Key Resources Customer Relationship Value Proposition Distribution Channel Target Customer Revenue Model 14