Let’s look at one example. Last year we saw how the incredible rise of Netflix suddenly halted. In two years time Netflix managed to boost its stock price value with almost 400%. An amazing figure in economic turbulent times! But then, in July of last year, Netlfix announced a new pricing strategy for its business model. The bundled package of DVD-by-mail and streaming service would be split up in 2 brands (Qwikster & Netflix). This resulted in a price increase of +60% for many of the Netflix subscribers. The backlash that followed the months afterwards lead to a loss of almost 1,000,000 customers and a drop in stock price of 200 dollar. By the end of the year, the operation to redesign their revenue model was canceled (sort of) but the damage had been done. Let’s hope Netflix doesn’t go down the MySpace route.Amazon, Redbox and Apple are not the smallest player to compete with!

Did we miss any relevant cases? I guess Groupon could be added to the list. Kodak as well? Thanks for sharing your ideas!

Which business models are the stronger ones: those that rely on high volume, low margins; those that rely on a low number of transactions and high margins per transaction; or a mix of both? And in which do investors see the most value? The comparison criteria are based on a typical choice for growing businesses, either to initially focus on increasing their reach and hence the number of transactions, either to focus on monetizing their business to extract better margins. To find out the answer, let’s have a closer look at some of the most innovative, diverse and popular business models currently in vogue. The analysis is based on data we collected from a myriad of sources as well as reasonable estimations to fill in the gaps. (ps: if you have more precise or up-to-date information, get in touch!)

Below we charted the different businesses in four quadrants, indicating four different combinations of low / high margins, and low / high volume (number of transactions). The size of the bubbles indicates the volume of funding the companies received. We have found that all companies with a low transaction volume received comparable venture funding, irrespective of their profit margin differences.

On the other hand, the ventures with very high transaction volumes or reach received large funding, irrespective of their profit margins. For Spotify the profits may actually be null or negative. We assumed a very nominal profit value, based on news reports and internet discussions. Even though it may be a guesstimate, it doesn’t changes the overall conclusion: ventures with high transaction volumes receive investor attention!

It is needless to say that the best quadrant to be in is the upper-right one – high transaction volume and high margin. That’s where Groupon is. And that quite obviously shows in the massive funding they have received.

However, Kickstarter has received more funding than some of the business models that have both higher volumes and margins. This suggests that investors are betting on variables that are not captured in the simple transaction-margins equation (which is no real surprise). What stands out albeit in a very small sample is that for investors volume or reach is more important than margins.

Information, thoughts or insights that were missed? Get in touch!

“You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.” Buckminster Fuller surely knew what he was talking about when writing down this famous quote. In our rapidly changing society an increasingly creative & flexible approach is required to keep up with the pace of innovation.

Possible stakeholder network for a local shop delivery service – TU/e Final Master Project (November 2010)

In this blog post I want to take you on a trip to the future, a future in which business modelling is an essential part of what I call the “transformation of society”. As a graduate student Industrial Design at the Eindhoven University of Technology (TU/e) I am educated to become a designer of intelligent products, systems & services, an integrator able to connect the dots between technology, user & business.

Within my Final Master Project I am tackling social isolation amongst elderly, a trending societal issue. In this context I used the Business Model Blocks both as an analysis tool to unravel existing value networks in the health care and domotics industry, as well as for ideating new models for this industry. The Blocks create a playful atmosphere to explore different stakeholder positions within an innovation network. What’s in it for the end-user? What’s in it for the technology provider? But also: what if we include a utility provider in the process? Or a local shop?

Business Model exploration

I strongly believe in the involvement of stakeholders (‘players’) in an early stage of innovation processes. The involvement of stakeholders early in the process creates a dynamic ‘network’ in which co-design plays an im- portant role. This way stakeholders really fit into the proposed system design in stead of retrofitting them after- wards. Stakeholders’ commitment will contribute to the designs ability to have a positive effect on society.

The Business Model Blocks offer a low threshold common language which supports this process of stakeholder involvement. In an exploratory, free way, partners can try out new business models for their project. In my Final Master Project the involvement of e-service provider Fifthplay and the Sint-Niklaas municipality was the result of such an exploration. E.g. Fifthplay can sell its technology (product). The municipality on the other hand was thought, and proven, to be a perfect partner to offer a social service to its inhabitants, while receiving the reputation as a progressive & caring city.

Design is about doing and not only about thinking! Exploration enables us to cross boundaries and discover the fuzzy front end of contigencies together with end-users & involved parties. Take a set of means, the Business Model Blocks, and focus on selecting between possible effects that can be created with that set of means. My advice is to use the blocks as a great source of inspiration and a brainstorm tool to come up with extreme & crazy value networks. Think about the essence of why parties are involved. Why would a company join your value network?

The Blocks

“A graphic is never an end in itself; it is a moment in the process of decision making.”- Jacques Bertin
Since the first edition of the Business Model Blocks I experienced the icons as a comfortable tool to explore value networks in design. Until then this opportunity hadn’t appeared to me, since there was no proper way to visually communicate complex stakeholder networks.

Brainstorm with Business Model Blocks 1.0 – TU/e course on ‘Value Chain Design’ (March 2010)

This brings me to my second thought: the Blocks are a perfect tool to translate values into a visually appealing & understandable representation of complex stakeholder systems. Their simplicity is their strength, both in the division of only 6 parties and 10 transfer items, as in their tangible appearance as magnetic tokens. The tangible blocks have the ease-of-use of a Post-it and are therefore very inviting to play with: place them, swap them, etc. One should not require the precision of a ‘Business Plan’ in working with the Blocks. Their strength lies in the simplicity of their sometimes abstract meaning. This simplicity however, made it difficult to determine the level of detail in some cases, since the abstraction of the transfer items (e.g. a pragmatic product vs. a fuzzy experience) diverges. Future exploration will have to point out opportunities for improvement of the Blocks. It might be that different societal & cultural contexts, such as designing for third world countries, requires additional parties or transfer items to properly describe the value flows in a network.

Watch the full presentation here. (full screen works best). If you like it, feel free to share, retweet or like it. And now you’re at it, did we forget an important business model? Send us your feedback below or via twitter (@nickdemey). thx

By all means, this checklist shouldn’t be seen as a fixed template. It’s a practical checklist that we have found useful in several alliance business model workshops and implementation projects. Tick the boxes for key questions, add new issues where needed, use the empty template to summarize key answers. And please share your feedback and ideas.

Tool 1: Business Model Canvas (by Alex Osterwalder)

The Business Model Canvas is the most widely used business model design tool accross the globe. Alexander Osterwalder has developed a powerful method to capture all elements of a business model: propositions, partners, activities, resources, customer relationships, channels, customer segments, costs, and revenue streams. You can read all about the canvas on his Business Model Alchemist blog and in the Business Model Generation book. The business model canvas is used in workshop settings, to visualize company business models (Nespresso), to analyze broken industry models, and for more creative business model drawings. Print out the Business Model Canvas, wait for the upcoming iPad application, or try out the BMDesigner to visualize your business model ideas on the canvas.

Tool 2: Plan Cruncher – Crunch your business plan on 1 page

With Plan Cruncher you can create a one-page summary of your business plan in need for investment. The Plan Cruncher tool asks you some of the standard questions that a business plan must answer, and formats your answers in a set of icons.  The icons are a visual representation of the key ideas in your business plan, such as ‘advertising revenue model’ or ‘in need for seed funding’. In contrast to the the other two tools, Plan Crunchers incorporates broader business plan elements  in addition to the business model. By asking you a set of key questions that you have to answer, I found it very useful in forcing you to make a very simple summary of your start-up’s business plan. Check out these examples.

Tool 3: 10 Blocks To Design Your Business Model

This tool defines a common, visual language to present business models with 10 Building Blocks. We believe it is an intuitive tool to visualize transactions between actors in a business model, and to specifically explore different revenue models (please take into account my personal involvement having co-developed this tool). On the other hand, the Business Model Canvas provides a broader base to capture the HOW of a business model in terms of infrastructure, resources and key processes. The 10 blocks are used in creative business model workshops, to visualize business models of start-ups (Beebole), to win a Student Innovation Challenge, and to build a global database of revenue model examples. Print and cut out the 10 Building Blocks, download the presentation template, or try the online Business Model Drawing Tool (supported by Google Docs).

What’s your experience in communicating and visualizing a business model? Have you used one of these or other methods? What else would you like to see?

Are you looking for a simple tool to visualize your business model (ideas)? Go to the drawing tool, sign in at Google if not signed in already, and create a personal copy via the menu to start editing. Business models created with the Drawing editor can be downloaded in most standard formats (PNG, JPG, SVG, and PDF).  Please note that the drawing editor only works with Firefox, Safari, and Chrome (you can also use it in Internet Explorer if you install Chrome Frame). Drag and draw your business models with GDocs… What are your results? What do you think of usability and functionality?

Just create a new slide, and start mapping any business model you want! You can also print the pdf template and cut out the building blocks for offline business modelling. When finished, you can share your results and thoughts with the community on slideshare or flickr (tag: BCONCEPT). You can also email your business models and questions to info@boardofinnovation.com if you want specific feedback.

Find inspiration to visualize your own business model by browsing through our growing database of revenue models per industry and type.

Once you grasp the building blocks below, check out our business model templates to design your own business model in seconds. Share the results in your organization and let us know what you think about this method.

Part 1: The players

A. The company

The first big entity is a company. In most models this will be the actor that offers the product. The company whose business model is designed, will be colored blue in differentiation with other players and stakeholders.

B. The consumer

The one that receives the product and gives something in return, is the consumer. In B2B models, the client is a company and will therefore be illustrated with the previous company icon. The general company-client relation is the same in both business systems.

Part 2: The flow from company to client

Product

The first, most straightforward offer to clients is an actual product, ranging from basic commodities up to finished goods. A BMW car is one example, but today also digital products can be included.

Service

A first way to upgrade your business model is to offer a service next to the product. BMW in this case will not only sell you a car, but will include maintenance and other services around the product. Of course, a lot of companies offer only services without product.

Experience

The two concepts of product and service are commonly applied throughout our economy. In the last years, several companies have moved a step further by offering an experience to customers. BMW does not sell a car with a service in this case, but a driving experience.

Reputation

Today, the next upgrade to reputation can only be found in a few sectors. In these cases, ‘reputation’ selling can be described as the most essential brand experience. If you take the example of BMW, then you could say that some people don’t see their BMW as a driving experience but as the core values and reputation of the brand as such. Hereby, customers are able to shape their own identity with that of the company. Typically reputation will be placed in the top of Maslow’s hierarchy of needs, which makes this type of transaction extremely valuable to companies.

Part 3: The flow from client to company

Money

The typical currency that clients pay with, is money – which is critical to company’s revenue models. This is in contrast to exchange. The building blocks make a differentiation between two types of money. This first icon represents the normal value of a good, including profit.

Less Money

This second icon represents money as well, but less than the normal amount covering cost and profit of what is offered. Usually this transaction implies that other revenue streams are added to the traditional business model.

Attention

Attention has become an important new currency that clients can pay with. Free business models are often based upon this principle: clients get a product or service for free, but pay with their attention (to 3th party advertisers).

Exposure

Active exposure is the next step in the evolution of currency. People are not only offering their own attention, but also that of their peers in their social environment. For some businesses the spreading of their ideas and brand values becomes more important than the immediate return in money. Of course, companies can’t just rely on active exposure,  so their business model should include more players and other transactions. Many start-ups and even big web 2.0 companies are still struggling with this. There is a lot of exposure and value offered to clients, but there is no sustainable business model to capture that value in revenues and profit.

Conclusion

These 10 building blocks offer a new way of designing and innovating business models. Although reality is always more complex, the use of generic building blocks enables you to visually map models, compare different businesses, and identify underlying trends. When you have questions like ‘how to apply the eBay business model in my industry’ or ‘how to monetize my new product or service’, you can start very practically by analyzing successful new business models and transfer their general principles into your industry. Check out our business model templates to design your business concept in seconds!

<h2>Try our business model templates</h2>
				<h3>Online business model editor</h3>
				<img src="http://www.boardofinnovation.com/wp-content/themes/jan2010/images/googledocs.jpg" class="thumb_industry">Use these <a href="http://www.boardofinnovation.com/2009/03/19/how-to-build-any-business-model-with-only-10-blocks/" alt="design your business model with 10 building blocks" title="design your business model with 10 building blocks">10 building blocks</a> to design your business model. Thanks to the lovely people of Google you can now use an <a href="http://docs.google.com/drawings/edit?id=1U98Rco7ClaUvDcbVVG2Cg_6H-57627i2YtkWs7bRGaw&hl=en" alt="online business model template" title="business model template">online drawing tool</a> to visualize your revenue streams and partner networks. Just make a copy of this <a href="http://docs.google.com/drawings/edit?id=1U98Rco7ClaUvDcbVVG2Cg_6H-57627i2YtkWs7bRGaw&hl=en" alt="business model template" title="business model template">business model template</a> and start sketching! 

				<h3>Download 10 building blocks</h3>

				<img src="http://www.boardofinnovation.com/wp-content/themes/jan2010/images/10blocks.jpg" class="thumb_industry">If you&#39;re looking for a more tangible tool set then you can make use of the paper version of our 10 building blocks. Just <a href="http://www.boardofinnovation.com/2009/06/05/download-and-try-this-template-to-design-your-own-business-concepts/" alt="download business model template" title="download business model template">download the PDF here</a>, cut out the pieces and you&#39;re ready to explore new business concepts! Even a <a href="http://www.boardofinnovation.com/2009/06/05/download-and-try-this-template-to-design-your-own-business-concepts/" alt="download business model template" title="download business model template">powerpoint </a> version is available.