businessmodelgeneration-141206115947-conversion-gate01

Business Model
Generation
Written by
Alexander
Osterwalder and
Yves Pigneur
2010
2/21/20161 Business Model Generation (Osterwalder and Pigneur, 2010)

Table of content
1. Canvas
2. Patterns
3. Design
4. Strategy
5. Process
6. Outlook
7. Afterword
2/21/20162 Business Model Generation (Osterwalder and Pigneur,
2010)

1. Canvas
1. Definition of a business model
2. The 9 building blocks
3. The business model canvas template
2010)

1. Business Model
2. Elements of a Business Model
A business model describes the rationale of
how an organization creates, delivers and
captures value
Customer Segments
Customer Relationship
Value Proposition
Channel
Revenue Stream
Key activities
Key partners
Key resources
Cost structure
2010)

CS. Customer segment
Different group of people or organizations an
enterprise aims to reach and serve
Segments defined by:
 Customer needs
 Reach
 Relationships
 Profitability
 Willingness to pay
Dominant forms:
 Mass market (e.g. Wal-
Mart)
 Niche market (e.g. Apple)
 Segmented (e.g. Microsoft
Home/ Office/ Enterprise)
 Diversified (e.g. Amazon
Cloud)
 Multi-sided platforms (e.g.
eBay)
2010)

VP. Value Propositions
Bundle of products and services that create value for a
specific customer segment
Ways of value creation:
 Newness
 Performance
 Customization
 Getting the job done
 Design
 Brand/ status
 Price
 Cost reduction (on usage)
 Risk reduction
 Accessibility
 Convenience/ usability 2/21/20166 Business Model Generation (Osterwalder and Pigneur,
2010)

CH. Channels
How company communicates with and reaches its
customer segments to deliver value proposition
Channel phases:
 Awareness
 Evaluation
 Purchase
 Delivery
 After sales
Own Partner
Direct Indirect
Sales
force
Web
sales
Own
stores
Partne
r
stores
Whole
salers
2010)

CR. Customer Relationships
Type of relationship a company establishes with
specific customer segments
Nature of customer relationships:
 Personal assistance (e.g. call centers)
 Dedicated personal assistance (e.g. private banking
HNIs)
 Self-service (e.g. online banking)
 Automated services (e.g. customer rating/ review)
 Communities (e.g. PatientsLikeMe.com )
 Co-creation (e.g. YouTube.com)
2010)

R$. Revenue Stream
Cash a company generates from each customer
segment (transaction revenue or recurring revenue)
Revenue models:
 Asset sales (e.g.
automobiles)
 Usage fee (e.g.
telecom)
 Subscription fee (e.g.
gym)
 Lending/ renting/
leasing (e.g. car rental)
 Licensing (e.g. patent
royalties)
 Brokerage fee (e.g.
credit cards)
 Advertising (e.g. media
industry)
Pricing mechanisms
Fixed menu pricing Dynamic pricing
List price
Product feature
dependent
Customer segment
dependent
Volume dependent
Negotiation
Yield management
(e.g. airline seats)
Real-time-markets
Auctions
2010)

KR. Key Resources
The most important assets required to make a
business model work
Categories of resources include:
 Physical (e.g. facilities, buildings, machines, systems,
networks)
 Intellectual (e.g. brands, proprietary knowledge, patents
and copyrights, partnerships and customer databases)
 Human (e.g. knowledge intensive and creative industries)
 Financial (e.g. cash, lines of credit, stock options)
2010)

KA. Key Activities
The most important things a company must do to make
its business model work
Key business activities could include:
 Production
 Problem solving (e.g. service/ utility industries)
 Platform/ network (e.g. matchmaking platforms, software,
etc)
2010)

KP. Key Partnerships
Network of partners or suppliers that make the
business model work
Types of partnerships could be:
 Strategic alliance between
non-competitors
 Coopetition, as alliances
between competitors
 Joint ventures for developing
new products
 Buyer- supplier relationships
to assure reliance supplies
General motives are:
 Optimization and
economies of scale
 Reduce risk and
uncertainty (e.g. Blu-ray)
 Acquisition of particular
resources and activities
2010)

C$. Cost Structure
Cost incurred in operating a business model
Dominant cost structures
 Cost driven (e.g. low-price
value proposition,
automation, outsourcing)
 Value driven (e.g. premium
value creation, and high
degree of personalization)
Characteristics of cost
structure:
 Fixed costs
 Variable costs
 Economies of scale
 Economies of scope
2010)

3. Business model canvas template
Key Partners Key Activities Value
Proposition
Customer
Relation
Customer
Segments
Key
Resources
Channels
Cost Structure Revenue Streams
2010)

Apple iPod/ iTunes business Model
Key Partners
 Record
companies
 OEMs
Key Activities
 Hardware
design
 Marketing
Value
Proposition
 Seamless
music
experienc
e
Customer
Relation
 Lovemark
 Switching
cost
Customer
Segments
 Mass
market
Key Resources
 People
 Apple brand
 iPod hardware
 iTunes
software
 Content and
agreement
Channels
 Retail stores
 Apple stores
 iTune stores
 Apple.com
Cost Structure
 People
 Manufacturing
 Marketing and sales
Revenue Streams
 iTunes stores
 Large hardware revenue
 Some music revenue
2010)

2. Patterns
1. Unbundling business models
2. The long tail
3. Multi-sided platforms
4. Free as a business model
5. Open business models
2010)

1. Unbundling business models
Early market entry
enables charging
premium prices and
acquiring large market
share; speed is key
High cost of customer
acquisition makes it
imperative to gain
wallet share;
economics of scope
are key
High fixed costs make
large volumes
essential to achieve
low unit costs;
economics of sale are
key
Battle for talent; low
barriers to entry;
many small players
thrive
Battle for scope; rapid
consolidation; a few
big players dominate
Battle for scale; rapid
consolidation; a few
big players dominate
Employee entered;
coddling the create
stars
Highly service
oriented; customer-
comes-first mentality
Cost focused;
stresses
standardization,
predictability and
efficiency
Product Innovation
Customer
Relationship
Management
Infrastructure
Management
Economics
Competition
Culture
Examples: mobile telecom industry, private banking industry
2010)

2. Long tail business models
2/21/2016Business Model Generation (Osterwalder and Pigneur,
2010)
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 Selling less of more; large number of niche products,
each of which sells relatively infrequently
 Moving away from only selling ‘hit’ products
 Examples: Netflix, eBay, YouTube, Facebook,
Lulu.com (book publishing), Lego Factory
 Drivers
 Democratization of tools of production (e.g. movie
making)
 Democratization of distribution (on Internet)
 Falling search cost of connecting supply with demand

Long tail explained for music industry
2010)
19

3. Multi-sided platforms
2010)
20
 Brings together two or more distinct but
interdependent groups of customers. Product value
by:
 Facilitating interactions
 Network effect (more leads to more) Same-side effect and
other-side effect
 One side generates revenue, and other side is subsidized
 Examples: Visa, Google, eBay, Microsoft Windows
SDK, Financial Times, Wii game console, Metro (free
newspaper)

Google business Model
Key Partners Key Activities
 Platform
management
 Managing
services
 Expanding
reach
Value
Proposition
 Targeted
ads
 Free
search
 Monetizin
g content
Customer
Relation
Customer
Segments
 Advertisers
 Web surfers
 Content
owners
Key Resources
 Search
platform
Channels
Cost Structure
 Platform cost
Revenue Streams
 Keyword auction
 Free
2010)

PSP/ Xbox versus Wii focus
2010)
22
Key
Partners
Key Activities Value
Proposition
 High
performa
nce
console
 Console
audience
Customer
Relation
Customer
Segments
 Hardcore
gamers
 Game
developer
s
Key
Resources
Channels
 Hardware sales at a loss
 Royalties from developers
Sony
PlayStation
Microsoft
Xbox
Key Partners Key Activities Value
Proposition
 Family
console
 Access to
console users
 Cheap game
development
cost
Customer
Relation
Customer
Segments
 Casual
gamers
 Game
developers
Key Resources Channels
 Profitable hardware sales
 Royalties from developers
Nintendo Wii

4. ‘Free’ as a business model
2010)
23
 Non-paying customers are financed by another part
of the business model or by another customer
segment
 Examples: Metro (free paper), Flickr, Open Source,
Skype, Google, Free Mobile Phones, Insurance
 Some models are:
 Advertising (one side of multi-sided platform pays)
 Freemium (free basic offerings, and optional premium
services)
 Bait and hook (free or inexpensive trials)

Red Hat Linux business model
Key Partners
 Linux Open
Source
developmen
t community
Key Activities
 Software
support
services
 Software
visioning and
testing
Value
Proposition
 Free
(Linux)
open
source
based
software
 Continuous
upgraded,
services
and
guaranteed
software
Customer
Relation
 Self
service
and direct
access to
engineers
Customer
Segments
 Advertisers
 Web surfers
 Content
owners
Key Resources
 Red Hat
(Linux)
software
Channels
 Redhat.co
m
 Red Hat
global
branches
Cost Structure
 Elements of a service company
Revenue Streams
 Professional subscription
 Free software
2010)

Skype business model
Key Partners
 Payment
providers
 Distribution
partners
 Telco
partners
Key Activities
 Software
development
Value
Proposition
 Free
Internet
and voice
calling
 Cheap
calls to
phones
(SkypeOut)
Customer
Relation
 Mass
customized
Customer
Segments
 Web users
globally
 People who
want to call
phones
Key Resources
 Software
developers
 Software
Channels
 Skype.com
 Headset
partnership
s
Cost Structure
 Software development
 Compliance management
Revenue Streams
 SkypeOut pre-paid or subscription
 Hardware sales
2010)

Gillette: ‘Bait and hook’ business model
2010)
26
Key Partners
 Manufacturers
 Retailers
Key Activities
 Marketing
 R&D
 Logistics
Value
Proposition
 Razor
handle
 Blades
Customer
Relation
 Built-in
‘lock-in’
Customer
Segments
 Customers
Key
Resources
 Brand
 Patents
(blocking)
Channels
 Retail
Cost Structure
 Marketing
 Manufacturing
 Logistics
 R&D
Revenue Streams
 One time hand purchase
 Frequent blade replacement

5. Open Business Models
2010)
27
Closer Open
The smart people in our field work with
us
We need to work with smart people
both inside and outside our company
To profile from research and
development, we must discover it,
develop it, and ship it ourselves
External R&D can create significant
value; internal R&D is needed to claim
some portion of that value
In we conduct most of the best
research in the industry, we will win.
We don’t have to originate the
research to benefit from it
If we create the most or the best ideas
in the industry, we will win.
If we make the best use of internal and
external ideas, we win.
We should control our innovation
process, so that competitors don’t
profit from our ideas
We should profit from others’ use of
our innovations, and we should buy
others’ intellectual property whenever
it advances our own interest
Principles of innovation

Outside-in versus inside-out approaches
2010)
28
Key Partners
 Other
company’s IP
 External
scientists
 Retires
scientists
Key Activities
 Internal R&D
Key Resources
 Internal R&D
Cost Structure
 Leveraging internal R&D
Value Proposition
 IP for
underserved
diseases
Customer
Relation
 Acquisitio
n
 Retention
Customer
Segments
 Outside
researchers
Channels
 Patent
pools
Revenue Streams
 License fee
Procter & Gamble: Connect
and Develop
GlaxoSmithKline:
Patent Pools

InnoCentive
2010)
29
Key Partners
 Major
‘seekers’
Key Activities
 Platform
manageme
nt
 Acquire
solvers and
seekers
Value
Proposition
 Access to
broad
network of
scientist
‘solvers’
 Connect
‘seekers’ and
‘solvers’
 Access to
scientific
challenges
with cash
rewards
Customer
Relation
 Online
profiles
Customer
Segments
 Seekers
(company)
 Solvers
(scientists)
Key
Resources
 Brand
 Patents
(blocking)
Channels
 Innocenti
ve.com
Cost Structure
 Platform management
 Acquisition of solvers and seekers
Revenue Streams
 Free access to challenges
 Fee to list challenges
 Commission on rewards for
solutions

3. Design
1. Customer insights
2. Ideation
3. Visual thinking
4. Prototyping
5. Storytelling
6. Scenarios
2010)

1. Customer insights
2010)
31
“If I had asked my customers what they wanted, they
would have told me ‘a faster horse.’”- Henry Ford
Empathy Map
What does the
customer SEE?
What does the
customer HEAR?
What does the
customer SAY and
DO?
What does the
customer THINK
and FEEL?
PAIN GAIN

2. Ideation
2010)
32
A creative process for generating a large number of
(business model) ideas and successfully isolating
the best ones.
Generation Synthesis
Suggested approaches:
Epicenters of Business Model Innovation
What if? Analysis

Epicenters of Business Model Innovation
2010)
33
Resource- driven Offer- driven
Customer- driven Finance- driven
Example: Amazon Web
Services
Example: Cemex
(Mexican cement
company)
Example: 23andMe
(personalized DNA
testing)
Example: Xerox 914 (lease at $95
per month, 2000 free copies, 5
cents per copy

Power of ‘what if’ questions
2010)
34
Examples
 IKEA (buyers pick up components in flat packaging
and assemble themselves)
 Rolls-Royce (maintenance price for every hour an
engine runs)
 Skype (free voice calling over Internet)
 Car2go by Daimler (car rental anywhere in the city)
 Zopa (peer-to-peer landing system)
 Grameen Phone (microfinance coupled with mobile
devices)

Ideation Process
2010)
35
General approach
 Team composition (diverse at
all levels)
 Immersion (home work on
customer, technology, trends,
business models)
 Expanding (ideation with a
focus on quantity, not quality)
 Criteria selection (e.g.
implementation time, revenue
potential, possible customer
resistance, and impact on
competitive advantage)
 Prototyping (creation of a
business model for shortlisted
ideas)
Brainstorming rules
 Stay focused on a well
honed statement
 Enforce rules, such as
deferring judgment, go
for quality, encourage
wild ideas, etc.
 Think visually with post-
it notes, sketches, etc.
 Prepare, with an
immersion exercise
beforehand

3. Visual Thinking
2010)
36
 Sketches- however rudimentary or amateurish- help
people better describe, discuss, and understand
issues.
Suggested processes
 Visualizing with Post-it notes
 Visualizing with drawings
 Understand the essence
 Enhance dialogue
 Explore ideas
 Improve communication
 Telling a visual story

4. Prototyping
2010)
37
 For pre-implementation visualization and testing
 Tool of inquiry
 Infuses a design attitude, which includes
 Willingness to explore crude ideas
 Rapidly discarding them
 Take time to examine multiple possibilities
 Accept uncertainty until design direction matures
 Scale of prototypes
 Napkin sketches  elaborate canvas  business case 
field-test

5. Storytelling
2010)
38
Why storytelling?
 Introducing the new (provoke
ideas/ justify change/ introducing
tangibility)
 Pitching to inventors (for
clarification)
 Engaging employees
Typical starting points (choice of
protagonist)
 Company perspective (employee
observer)
 Customer perspective (customer
jobs)
Techniques:
Talk and image
Video clips
Role play
Text and image
Comic strip

6. Scenarios
2010)
39
Types of scenarios
 Define different customer settings
 How products or services are used
 What kind of customers use them
 Customer concerns, desires and objectives
 Possible future environments

4. Strategy
1. Business model environment
2. Evaluating business models
3. Business model perspectives on Blue Ocean Strategy
4. Managing multiple business models
2010)

1. Business Model Environments
2010)
41
Industry forces
Suppliers and other value chain
actors
Stakeholders
Competitors (incumbents)
New entrants (insurgents)
Substitute products and services
Key trends
Regulatory trends
Technology trends
Societal and cultural trends
Socioeconomic trends
Macro-economic factors
Global market conditions
Capital markets
Economic infrastructure
Commodities and other resources
Market forces
Market segments
Needs and demands
Market issues
Switching cost
Revenue attractiveness

2. Evaluating business models
2010)
42
 Big picture assessment
 Happens on the business model
 Identification of +/ - for each of the nine elements of
business model
 SWOT analysis (Strength- Weakness- Opportunity-
Threat)
 Value proposition assessment
 Cost/ revenue assessment
 Infrastructure assessment
 Customer interface assessment

SWOT analysis (indicative questions)1/4
2010)
43
Value proposition assessment
 Our value propositions are well aligned with
customer needs
 Our value propositions have strong network effect
 There are strong synergies between our products
and services
 Our customers are very satisfied

SWOT analysis (indicative questions) 2/4
2010)
44
Cost/ revenue assessment
 We benefit from strong margins
 Our revenues are predictable
 We have recurring revenue streams and frequent repeat
purchases
 Our revenue streams are diversified
 Our revenue streams are sustainable
 We collect revenue before we incur expenses
 We charge for what customers are really willing to pay for
 Our pricing mechanisms capture full willingness to pay
 Our costs are predictable
 Our cost structure is correctly matched to our business model
 Our operations are cost-efficient
 We benefit from economies of scale

2010)
45
Infrastructure assessment
 Our key resources are difficult for competitors to replicate
 Recourse needs are predictable
 We deploy key resources in the right amount at the right
time
 We efficiently execute key activities
 Our key activities are difficult to copy
 Execution quality is high
 Balance of in-house versus outsourced execution is ideal
 We are focused and work with partners when necessary
 We enjoy good working relationships with key partners

2010)
46
Customer interface assessment
 Customer churn rates are low
 Customer base is well segmented
 We are continuously acquiring new customers
 Our channel are very efficient
 Out channels are very effective
 Channel reach is strong among customers
 Customers can easily see our channels
 Channels are strongly integrated
 Channels provide economies of scope
 Channels are well matched to customer segments
 Strong customer relationships
 Relationship quality correctly matches customer segments
 Relationships bind customers through high switching costs
 Our brand is strong

SWOT- Assessing threats – 1/2
2/21/2016Business Model Generation (Osterwalder
and Pigneur, 2010)
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Value proposition threats
 Are substitute products
and services available?
 Are competitors
threatening to offer batter
price or value?
Cost/ revenue threats
 Are our margins
threatened by
competitors? By
technology?
 Do we depend exclusively
on one or more revenue
streams?
 Which revenue streams
are likely to disappear in
the future?
 Which costs threaten to
become unpredictable?
 Which costs threaten to
grow more quickly than
the revenues they
support?

SWOT- Assessing threats – 2/2
and Pigneur, 2010)
48
Infrastructure threats
 Could we face a disruption
in the supply of certain
resources?
 Is the quality of our
resources threatened in any
way?
 What key activities might be
disrupted?
 Is the quality of our activities
threatened in any way?
 Are we in danged of losing
any partners?
 Might our partners
collaborate with
competitors?
 Are we too dependent on
certain partners?
Customer interface threats
 Could our market be
saturated soon?
 Are competitors threatening
our market share?
 How likely are customers to
defect?
 How quickly will competition
in our market intensify?
 Do competitors threaten our
channels?
 Are our channels in danged
of becoming irrelevant to
customers?
 Are any of our customer
relationships in danger of
deterioration?

SWOT- Assessing opportunities– 1/2
and Pigneur, 2010)
49
Value proposition
opportunities
 Could we generate
recurring revenues by
converting products into
services?
 Could we better integrate
our products or services?
 Which additional customer
needs could we satisfy?
 What complements to or
extensions of our value
propositions are possible?
 What other jobs could we
do on behalf of
customers?
Cost/ revenue opportunities
 Can we replace one-time
transaction revenues with
recurring revenues?
 What other elements
would customers be
willing to pay for?
 Do we have cross-selling
opportunities either
internally or with partners?
 What other revenue
streams could we add or
create?
 Can we increase price?
 Where can we reduce
cost?

SWOT- Assessing threats – 2/2-a
and Pigneur, 2010)
50
Infrastructure opportunities
 Could we use less costly
resources to achieve the
same result?
 Which key resources could
be better sourced from
partners?
 Which key resources are
under-exploited?
 Do we have unused
intellectual property of value
to others?
 Could we standardize some
key activities?
 How could we improve
efficiency in general?
 Would IT support boost
efficiency?
 Are there outsourcing
opportunities?
 Could greater collaboration
with partners help us focus
on our core business?
 Are there cross-selling
opportunities with partners?
 Could partner channels help
us better reach customers?
 Could partner complement
our value proposition?

SWOT- Assessing threats – 2/2-b
and Pigneur, 2010)
51
Customer interface
opportunities
 How can we benefit from a
growing market?
 Could we serve new
customer segments?
 Could we better serve our
customers through finer
segmentation?
 How could we improve
channel efficiency or
effectiveness?
 Could we integrate our
channels better?
 Could we find new
complementary partner
channels?
 Could we increase margins
by directly serving
customers?
 Could we better align
channels with customer
segments?
 Is there potential to improve
customer follow-up?
 How could we tighten our
relationships with
customers?
 Could we improve
personalization?
 How could we increase
switching cost?
 Have we identified and fired
unprofitable customers? If
not, why not?
 Do we need to automate

3. Business model perspectives on Blue
Ocean Strategy
2010)
52
Four action framework (ERRC Grid)
 Which of the factors that the industry takes for granted
should be eliminated?
 Which factors should be reduced well below the industry
standards?
 Which factors should be raised well above the industry
standards?
 Which factors should be created that the industry has
never offered?
KP KA VP CR CS
KR CH
C$ R$
Cost Side Value Side
Eliminate/ Reduce Raise/ Create

4. Managing multiple business models
2010)
53
Choices of business model in bringing an idea to the
market
 Integration (e.g. integration of each SMH (Swatch
Group) watch brand across the high, mid and low
segments)
 Autonomy (e.g. Car2go care rental startup from
Daimler?)
 Separation (e.g. complete independence of
Nespresso SA from Nescafe)

5. Process
1. Starting point
2. Five phases
2010)
54

1. Starting point
2010)
55
Objectives of new business models
 Satisfy markets (e.g. Tata Nano, NetJets,
GrameenBank, Lulu.com)
 Bring new product to market (e.g. Xerox 914,
Swatch, Nespresso, Red Hat)
 Improve market (e.g. Dell, Nintendo Wii, IKEA,
Bharati Airtel, Skype, Ryan air, Amazon.com, Better
Place)
 Create market (e.g. Diners Club, Google)

2. Five phases
2010)
56
Phases are
 Mobilize (setting the stage)
 Understand (immersion)
 Design (inquiry)
 Implement (execution), and
 Manage (evolution)

6. Outlook
1. Business models beyond profit
2. Computer aided business models
3. Business model and business plan
4. Implementation issues
5. Leveraging IT
2010)
57

1. Beyond-profit business models
2010)
58
 Categories
 Third-party funded enterprise models
 Triple bottom line business models
KP
Grameen
Bank
Network
Consortium
(Telenor)
KA
Manage
network
VP
Income
opportunity
Mobile
commn’
CR CS
Village
phone
ladies
Villagers
KR CH
Grameen
Bank
Village
phone
ladies
C$
Network
R$
Communication income
Grameenphone

2. Computer aided
2010)
59
 There are a host of computer application useful for
mind mapping, scenario generation, large data
analysis, trend spotting, etc, that could complement
paper-based approaches

3. Business plans
and Pigneur, 2010)
60
 Executive summary
 The team
 Management profile
 Why we are a winning team
 The business model
 Vision, mission and values
 How our business models works
 Value proposition
 Target market
 Marketing plan
 Key resources and activities
 Financial analysis
 Breakeven analysis
 Sales scenarios and projections
 Capital spending
 Operating costs
 Funding requirements
 External environment
 The economy
 Market analysis and key trends
 Competitor analysis
 Competitive advantage of our
business model
 Implementation roadmap
 Projects
 Milestones
 Roadmap
 Risk analysis
 Limiting factors and obstacles
 Critical success factors
 Specific risks and
countermeasures
 Conclusion
 Annexes

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