"Business Model Generation" is a book by Alexander Osterwalder and Yves Pigneur which introduces the Business Model Canvas, a visual tool for creating and analysing business models.
The book is divided into five parts:
- Canvas: section introduces the Business Model Canvas and explains how to use it to design, test, and iterate on business models.
- Patterns: section describes business models with similar characteristics, similar arrangements of business model building blocks or similar behaviours. Theses similarities are referred to as Business model patterns.
- Design: section delves into various design techniques which one can use to better create a value added business model
- Strategy: section deals with reinterpreting business strategy through the lens of the business model canvas, it helps constructively question established business practices while examining the environment in search of new opportunities.
- Processes: section proposes a generic business model design process, which is adaptable to to an organisations specific needs.
Overall, "Business Model Generation" is a practical guide for entrepreneurs, innovators, and business leaders who want to design and optimise their business models to create value for customers and achieve sustainable growth.
Patterns
This section describes business models with similar characteristics, similar arrangements of business model building blocks or similar behaviours. Theses similarities are referred to as Business model patterns.
Unbundling pattern
The first pattern represents the three traditional business models, some organisations span a single one of these, but they can cover all three.| Product Innovation | Customer relationship | Infrastructure Management | |
|---|---|---|---|
| Economics | 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 large wallet share; economies of scope are key | High fixed costs make large volumes essential to achieve low unit costs; economies of scale are key |
| Competition | Battle for talent; low barriers to entry; many small players | Battle for scope; rapid consolidation a few big players dominate | Battle for scale; rapid consolidation; a few big players dominate |
| Culture | Employee centered; coddling the creative stars | Highly service oriented; customer comes-first mentality | Cost focused; stress standardisation predictability and efficiency |
- Product innovation: you are bringing a physical thing to market
- Customer relation: you are providing a service of some sort to the market
- Infrastructure Management: you are managing a platform that other parties leverage.
The Unbundling pattern is often used by organisations that operate in industries with established product or service categories, such as media, telecommunications, financial and consulting services. By breaking apart these traditional offerings and creating new products or services, businesses can differentiate themselves and appeal to customers who may not be interested in the full suite of offerings provided by competitors.
The long tail pattern
The second pattern is the Long Tail pattern, which is a business model that targets a large number of niche markets rather than a smaller number of large markets. The term "long tail" refers to the shape of a graph that represents the distribution of demand for products or services in a given market.
Traditionally, businesses focused on selling a small number of popular products or services to a large number of customer. However, the rise of the internet and digital distribution has made it possible for businesses to sell a much larger number of niche products or services to a more dispersed customer base. This creates a "long tail" of demand that is often overlooked by traditional business models.
The Long Tail pattern is characterised by a few key elements:
- Focus on niche markets: Rather than targeting a large, general audience, businesses that use the Long Tail pattern focus on smaller, more specialised markets.
- Large selection of products or services: To appeal to a wide range of niche markets, businesses must offer a large selection of products or services.
- Digital distribution: The Long Tail pattern relies heavily on digital distribution channels, such as the internet, to reach a dispersed customer base.
Overall, the Long Tail pattern allows businesses to tap into a large and often overlooked market of niche customers, creating new opportunities for growth and differentiation. By offering a large selection of products or services and leveraging digital distribution channels, businesses can reach customers they may not have been able to reach through traditional means.
Multi sided platforms
The Multi-Sided Platform pattern is a business model that connects multiple groups of customers or users, enabling transactions or interactions between them. This type of platform is sometimes called a "two-sided" or "multi-sided" marketplace.
The Multi-Sided Platform pattern is characterised by a few key elements:
- Multiple customer or user groups: Multi-Sided Platforms connect two or more distinct groups of customers or users, each with their own needs and preferences.
- Network effects: Multi-Sided Platforms rely on network effects, where the value of the platform increases as more users or customers join.
- Transactions or interactions: Multi-Sided Platforms enable transactions or interactions between the different customer or user groups, creating value for all parties involved.
Overall, the Multi-Sided Platform pattern is a powerful way to create value by connecting different groups of customers or users. By enabling transactions or interactions between these groups, Multi-Sided Platforms can create new opportunities for growth and innovation.
Freemium Pattern
Free as a Business Model" is a pattern in which businesses offer their products or services free of charge, however generate revenue through some other means. This pattern is sometimes referred to as "freemium" or "advertising-supported" business models.
The "Free as a Business Model" pattern is characterised by a few key elements:
- Free products or services: The business offers a basic version of its product or service for free, often with limited features or functionality.
- Premium features or services: The business offers additional features or services for a fee, often targeted at users who need more advanced functionality.
- Advertising or sponsorship: The business generates revenue through advertising or sponsorship deals, often by selling access to its user base.
Overall, the Free as a Business Model pattern can be an effective way to attract a large user base and generate revenue through other means. By offering a free version of their product or service, businesses can attract users who may not be willing to pay upfront, but who may be interested in premium features or services later on. Additionally, by leveraging advertising or sponsorship deals, businesses can generate revenue from their user base without relying on direct payments from users.
Bait and hook pattern
The Bait and Hook pattern is a business model that involves offering a product or service at a low or discounted price, with the goal of generating additional revenue from related products or services. This pattern is sometimes referred to as the "razor and blades" or "loss leader" model.
The Bait and Hook pattern is characterised by a few key elements:
- Low-priced or discounted product: The business offers a product or service at a low or discounted price, often below cost, to attract customers and generate interest.
- Related products or services: The business then offers related products or services that are required to use or enhance the initial product, often at a higher price point.
- Repeat purchases: The goal is to generate repeat purchases of the related products or services, which provide a higher profit margin than the initial low-priced product.
Overall, the Bait and Hook pattern can be an effective way to attract customers and generate additional revenue from related products or services. By offering a low-priced or discounted product, businesses can entice customers to try their products or services, and then generate additional revenue from related offerings that provide a higher profit margin.
Open business models
Open business models are models that focus on collaboration and sharing of information as well as idle assets with external stakeholders such as customers, suppliers, and even competitors. These models are based on the idea that businesses can create more value by tapping into the collective knowledge and resources of a broader network.
|
Open vs Closed Mindset |
|
|---|---|
| Closed mentality | Custoemr relationship |
| The smart people in our field work for us | We need to work with smart people both inside and outside our orgnaisation |
| To profit from R&D we must discover it, develop it and ship it ourselves | External R&D can create significant value; internal R&D |
| If we conduct most of the best research in the industery, 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 will win |
| We should control our innovation process, so that competitor don't profit from our ideas | We should profit from other's use of our innovations, and we should buy other's IP whenever it advances our own intrests |
There are several types of open business models, including:
- Open innovation: This refers to the practice of using external ideas and resources to develop new products, services, or processes. Open innovation can involve collaborating with customers, suppliers, or even competitors to create new solutions.
- Open source: This refers to the practice of making source code for software or technology freely available for others to use, modify, and distribute. This can lead to greater collaboration and innovation as developers and users work together to improve and customize the technology.
- Crowdsourcing: This refers to the practice of using an online platform to solicit ideas, feedback, or contributions from a large group of people, often in exchange for recognition or compensation. Crowdsourcing can be used for a range of activities, from product development to marketing campaigns.
- Collaborative consumption: This refers to the practice of sharing or renting goods and services, often facilitated by online platforms. Collaborative consumption can provide more affordable and sustainable options for consumers, while also creating new revenue streams for businesses.
Overall, open business models can provide a range of benefits, from increased innovation and collaboration to new revenue streams and business models. By tapping into the collective knowledge and resources of a broader network, businesses can create more value for themselves and their stakeholders.
One caveat, in the actual book, there are a number of examples which tie the above Business models to real life examples and the Canvas.
