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2011 Annual SRII Global Conference

A Business Model Framework for the Design and Evaluation of Business Models in the Internet of Services

Nico Weiner, Anette Weisbecker


Fraunhofer IAO Stuttgart, Germany {nico.weiner | anette.weisbecker}@iao.fraunhofer.de
AbstractBusiness development comprises of various activities to determine future opportunities for a company like the identification of target markets, new products and services, a better pricing model or internal process innovation potentials. One of the significant aspects of a successful business development is therefore the consistent further development of business model alternatives for evaluation purpose. This paper introduces a detailed concept for the design of business model variants with the focus on service-based offerings in the internet. Based on current business model research and empirical findings, this work introduces a business model ontology and a corresponding software-approach to support the design of business model alternatives. The contribution of this work is the methodological support of the decision making process at the business development level. Keywords-business model; business model variants; business ontology; business design; internet of services; moby methodology

numbers. Thus one of the main problems is the absence of a detailed ontology formally describing the elements and relations of a business model with the focus on service-based businesses and the absence of a software-support to easily design and evaluate such business models. On the one hand many business model initiatives within companies comprise of high-level models and are mainly driven by slideshow-supported discussions. This is fine for the initial generation of business ideas but is a slow and blurred procedure to create real business development alternatives which consider all aspects of a business model. On the other hand, business plans contain detailed aspects of a business model, but their creation is time consuming and usually done after the decision for a new or changed business. The gap between the two worlds is closed with the business model concept, which occurs in research since over ten years. II. WHY DO WE NEED TO DESIGN BUSINESS MODELS? This paper shows the specialties of business models for internet-service offerings and introduces a new framework to support the fast creation of business model alternatives. Therefore a formalized model is introduced, which is almost completely implemented in a software-tool. The prototype is introduced at the end of this contribution. By introducing the formally described ontology and the subsequent software prototype, we target at the following value intention: A structured and global approach, to be able to focus on the right business model parts at the right time when developing business model alternatives. A faster approach, to develop more business model alternatives in a shorter time-frame with the help of a software tool. An open approach, to support the creative development of business model alternatives and therefore better decisions. This contribution introduces work which is partially based on contributions of researchers and practitioners in the area of business model design, economic theory and innovation management. The following two sections provide references to the most important external contributions. III. BUSINESS MODEL RESEARCH A business model is an abstract description of a companys business logic and provides an aerial view on
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I.

BACKGROUND

Today companies face diverse problems during the creative design and evaluation of possible business model alternatives. The increasing shift from product-offerings to service-offerings in the IT-sector (see e.g. [1]) leads to various challenges occurring during the design of the model itself and during the creation of valid business model alternatives. A recent study by [2] on CEOs revealed that many CEOs do expect customers to demand new and improved services in the near future. Furthermore, most CEOs do believe that they are not good prepared to focus on the important parts of the business model with the increasing economic complexity originating e.g. in more partnerships and different pricing-options. Especially in the context of service-based business models within a network of partners various questions arise. Which partners do we need for value creation? Which value is contributed by the partners? How do we share the revenues and costs? Therefore one of the key problems is to easily design alternative business model variants with respect to partner involvement. Current research contributes only a few formally detailed ontologies, which are needed to provide an adequate software-support. Even far less software-tools exist, supporting the creative development of a business model beyond spreadsheet-based calculation of expected revenues and costs based on hypothetical customer

978-0-7695-4371-0/11 $26.00 2011 IEEE DOI 10.1109/SRII.2011.13

several elements of a business, like value proposition, target customers, revenues stream and processes. Reference [3] defines a companys business model as a set of building blocks containing elements and relationships. To define a business model, we adopt the generic definition of [4] and the specific definitions by [3] and [5]. According to them, a business model is a conceptual tool containing a set of objects, concepts and their relationships with the objective to express the business logic of a specific company. Thus, a business model is neither (only) a process model nor (only) a set of key components of a company. An important part is the formalization of relationships between the components and how environmental and internal changes cause an adaptation of those components. Therefore a business model is a conceptual tool containing a set of objects, concepts and their relationships with the objective to express the business logic of a specific company or a product/service-offering. The development and observation of a business model is supported by related methodologies, software-tools, business strategies and market-data. To describe complex contexts like a business model, ontology based approaches are well suited as they allow a detailed expression of interconnected parts of a company and the changes which relate to all parts of a business. Osterwalders Business Model Ontology (BMO, see [3]) and the STOF-model introduced by [6] are examples of detailed ontologies. IV. METHODOLOGY AND SOURCES This submission introduces a framework for servicebased business models with a special focus on Software as a Service-vendors, but the introduced approach is transferable to other service-offerings like infrastructure-services as well. The business model framework incorporates new methods and new empirical findings derived in the context of the German THESEUS program for new technologies and methods in the Internet of Services. Further on the submission introduces the concept of a software-based business model designer for the design and the management of existing business models and the evaluation of various business model alternatives. The introduced ontology for internet-service business models is formally expressed and this section shows the theoretical and empirical sources which build the base for it. In business model literature three basic models could be identified which basically support the given requirements: The Business Model Ontology (BMO) by [3]. The e3-value model by [7]. The Service, Technology, Organization and Finances (STOF)-model by [6]. Additionally, for the basic support of service-engineering from a business model viewpoint, [8] derived an adapted business model concept following the Osterwalder BMO. These four business model concepts, which contain different levels of details, build the theoretical base for the introduced approach. We will show a matching-table of the various approaches later on.

To identify the special requirements to fully describe an internet service-providers business model, we have done our own empirical research and have partially utilized research carried out by other scientists and companies comprising of: A survey at German venture capitalists focusing on the funding of innovative business models in the ITsectors. Published in [11]. Selected use case analyses (Facebook, OnLive, iTunes, Amazon) were the initial model was applied to. Partially published in [12] and on www.itbusinessmodels.org (section presentations). A survey at 114 German IT-providers focusing trends and developments at Cloud Computing offerings and especially Software as a Service offerings. Published in [9]. An analysis of pricing models of selected infrastructure-providers (Amazon, GoGrid and Rackspace). See table 1 for more details. An analysis of 146 Software as a Service Offerings over the web (using the online directories crmlandmark.com, saaslist.com, the German Bitkom SaaS-directory and the directory of the German BVK of venture capital funded providers). Partially published on www.itbusinessmodels.org. Business model workshops and discussions with project partners in the context of the German THESEUS-program and with members of the Bitkom working group Software as a Service during the past three years. Based on theses sources, the submission shows a derived set of important questions and elements for internet-service business models. Afterwards the submission compares the derived framework with existing approaches by [3], [6] and [7] and outlines the main gaps and differences following a new adapted framework. The contribution closes with the concept of a web-based software-designer for business models named [moby:designer]bm to help vendors and stakeholders to easily design and evaluate business model variants. V. CURRENT TRENDS IN BUSINESS MODELS OF INTERNET-BASED SERVICE PROVIDERS

This section contains selected results of our previous work in a compact way. In the previous section we already described the sources these statements rely on. We will describe the statements regarding internet-service business models and show the most important questions emerging in this context. This is crucial to clarify the various elements and relations used within the business model ontology we describe later on. A. Define the Customers and the Partners Value and the resulting Service-Offering It is highly important to state the intended value which is related to a service-offering. The customers should know what to expect from the service. The better the finally delivered value is known, the easier it is to define the right, value-oriented pricing of the service. Especially for Software

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as a Service-offerings, [10] describes three main aspects for the buying decision. These are cost (e.g. absolute costs, switching costs to switch to other services and support), innovation (e.g. fast implementation and flexible usage) and uncertainty (e.g. through the outsourcing of software, data, property). Theses aspects should be appreciated while formulating a customer value proposition, e.g. by using the Empathy Map developed by the company XPLANE, a company which supports the idea of visual thinking in business (see www.xplane.com for more information). During our surveys at German IT-vendors and during our discussions with service-providers it turned out, that not only the customer value proposition is important to think about in advance. To build a network of partners to create a cooperative service-offering, it is important to think about the potential values of all contributing roles. Thus, the partner value plays an important role when the revenue of a service is shared among different stakeholders. To close the loop, the actually experienced value of the customer and the partner should be regularly observed. This way, the gap between intended value and real observed value can be unveiled and addressed. Important questions are: Which value do we intend to provide to customers and partners? Do we expect efforts by the customers? Which value and which service level is expected by the customer and the partner? For which value is the customer willing to pay? What is the value adding of our service-offering regarding our competitors offering and what is the main advantage to an on-premise offering? Which actual value is experienced by the customer and the partner? How big is the gap between intended and experienced value and why? What value is contributed by partners? How critical is this value for our customer and thus for our own offering? How can we measure the value and create a feedback loop? How can we protect our services and products? Which degree of standardization and individualization do we need? Which interfaces and import and export options are expected? Should we open up our service (data) to thirdparties? B. New Target Customers and the Changing View on Competition German IT-Vendors see the chance to provide new target customer groups with Software as a Service-offerings instead of, or complementary to, on-premise offerings. Additionally, the providers reckon on increasing pressure by competitors offerings to implement an own service-offering. Currently the market is heavily diverse in its progression towards service-offerings. The customer relationship management software branch e.g. is one of the most advanced areas with existing service-offerings. Additionally in the service-sector, competitors sometimes appear from surprising areas, like in

the navigation-sector where the typical providers like TomTom, Garmin, Navigon etc. face mobile-application providers like Nokia and Google as competitors. Another aspect is the changing view on the field competition itself. Especially for services offered via the web, it is important to know competing websites, their search-engine ranking, their unique visitors etc. Various tools on the web contribute to the clarification of the field of competition but are ignored in the context of business model design. Important questions are: Who are our target customers and what is our set of criteria (size, IT-requirements, revenue potentials etc.)? What are their needs? Are customers used to our kind of service-offering by competitors offerings? Which direct competitors do exist? Which potential competitors do exist (e.g. competitors currently having an on-premise offering or other atypical actors) and how can we create a competitive intelligence process to minimize the risk of surprises? How can we get pilot-customers and references? Which requirements does the customer have (technical, functional, support etc.)? How can we establish a customer relationship and a partner relationship? C. New Ways of Service Provision within a Network of Partners Because of the trends of IT-vendors to change more and more to service- instead of product-offerings (see e.g. [1]), the vendors face the problem of adapting their customer interaction with the changed distribution channel. One of the main questions is to choose between sales and support partners or to put own efforts into these areas. Additionally, our surveys show a clear trend to the integration of partners in the own service-offering, be it to provide the hardware and ensure the availability of the service or to integrate the software into existing systems and to provide the support. Many IT-vendors focus on their core competencies and use external service-offerings to value add their own offering. This has strong influence on the sharing of data, the privacy and the security of the data. To convince the customer of strong and secure processes, the exchange and processing of data with partners should be transparent at any time. Therefore the agreements between the various actors should be clearly formulated, including the service levels between customers and partners as well as the contract relations and the involvement of data-processing. Important questions are: How can we provide our service (on-demand, platform, hosting, inhouse, appliance etc.)? Which platforms, directories and formal descriptions does our service need to be locatable (e.g. USDLwww.internet-of-services.com, GoodRelations http://www.heppnetz.de/projects/goodrelations/)? Which other services do exist in our domain/ sector? What is our role in the service-network and what is the customer expectation? In which way do we

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TABLE I.

IMPORTANT PRICING CRITERIA OF THREE SELECTED CLOUD COMPUTING PROVIDERS


Amazon GoGrid Windows, Linux unkown on-demand Rackspace Windows, Linux US only (UK planned, but locationdependend pricing plans are on-demand Windows, Linux US-N. Virgina, US-N. California, EUIreland, APAC-Singapur on-demand, reserved instances, spot instances main-basis for the pricing: standard (small, large, extra large), highmemory (extra large, double extra large, quadruple extra large), highCPU (medium, extra large) pay per instance depends on the standardized instances (see standardized offering ) depends on the standardized instances pay per GB and month (temporarily free inbound) pay per instance and hour

OS Location Adhoccharacter

Standardized offering

standardized RAM usage plans with volume discounts (professional, business, corporate, enterprise) pay per instance based on server-size main-basis for the pricing (pay per GB RAM and month or with standardized pre-paid pricing) pay per GB and month (free inbound) unknown available (free)

dependend on the memory-size

Instances Compute Units

pay per instance based on server-size (minimum 4 virtual CPU, free upscaling if resources available) main-basis for the pricing

Memory size Transfer (incoming/ outgoging) Monitoring

pay per GB and month unknown available with customers softwareimplementation (free)

pay per load balancing-hour and Load Balancing additionally per GB of data processed via Load Balancing free if used, if not used charged per hour, if routed charged per forwarded address and per month (if over 100 routings) automatically enabled and free but requires the fee required monitoring service to be enabled independed from instance-runtimestatus (separate pricing) available, additional license fees

IP Addresses

supported (free up to 16)

supported (pricing unknown)

Scaling Backup and permanent storage Additional software

depends on Load Balancing Option (degree of automation unknown) pay per month (server parking) available, additional license fees

manually and through 3rd parties independed from instance-runtimestatus (separate pricing) unknown

communicate partner-involvement in our serviceoffering? Which criteria and service levels do we need to choose partners? Which service level do we provide to customers and which service level do we expect from partners? Which processes, resources and capabilities (external complementary offerings) do we need to outsource to partners, to acquire and to create ourselves? Which agreements do we create with partners and customers? Who has direct contracts with the customer? How do we communicate the adequate provision of our service to the customer (provide evidence)? Which critical customer data do we process and who is involved? How deep do we integrate our service into third party systems and vice versa to fulfill the intended value proposition?

D. A New Perspective on Financial Aspects in a Network of Partners In a network of partners, the sharing of revenue is an important aspect to think about, especially if the partners do not directly invoice the target customer, but are part of a more complex service-offering which is sold by one party who acts as a kind of general contractor. During business model design, various sharing scenarios should be tested and

discussed. The pricing should be modeled in various scenarios as well. The business model designer has to decide between simple and complex pricing methods, customer- or competitor-oriented pricings etc. Furthermore, the potential costs through the violation of service levels should be included in the financial scenario. This leads to a more complex formalization of the financial perspective for service-offerings than the current models are able to describe. Important questions are: What is the critical mass to create a sustainable service-offering? Which direct and indirect revenue sources do we expect? What is the preferred pricing model by the customer and is there a competitive advantage by using this one? Can we provide more than one pricing model? Which investments do we need? Which cost-streams do exist (including costs for external services)? What are the main cost-drivers? What are the potential costs caused by service level violations? How do we share revenues in the partner network? Which incentives do exists beyond revenue? An example for the complexity regarding the pricing of cloud-services is shown in Table 1. It clearly shows, that we

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Value Proposition describing Value Intention Customer Experience Partner Experience

Distribution Channels Target Customer Groupings of Customers and Customers Customer Relationship

External Perspective

Value Approach

Market Interface

Business Web Partners and Resellers Business Relationship Competition Competitors

Financial Domain
Investors & Investment Streams
Revenue Streams & Revenue Sharing Pricing Expenditures

Internal Perspective

Business Processes

Products & Services Product Offerings

Capabilities IT-Resources

Value Creation & Capabilities

Products & Services

Service Offerings

Human Resources

Complementary Offerings

Figure 1. The [moby]Business Model domains including the elements and the three cross-layer functions.

need a standardized structure to describe the various pricings, which can be similar complex for software-services and platform-offerings. Therefore we support the idea of the unified services description language (USDL, [13]) in combination with the pricing paramters for softwareofferings introduced by Lehmann [14]. The software introduced later on is integrating a simple editor for the USDL-pricing module and integrates the parameters defined by [14] as well. VI. THE GENERAL BUSINESS MODEL PRINCIPLE This contribution intends to provide a business model ontology to support the design of business model variants and thus support business development decisions via a systematic approach. Fig. 1 illustrates the derived high-level perspective on all business model elements which could be identified for internet-services business models based on the previously mentioned findings. The two main perspectives are the internal and the external perspective, comprising of different business model domains. The external perspective describes all aspects which are directly related to the customer and the market. Value Approach describes all values which are intended and experienced by customers and partners. The Market Interface describes the target customers, partners, distribution channels and the competition which is related to the own services. On the other hand, the internal perspective describes the offered Products & Services, including the related agreements with partners and customers, and the Value Creation & Capabilities, which contain value related activities like business processes, capabilities and resources. The Financial Aspects are the fifth domain of the business model. This domain is heavily involved in all aspects of a business model. The value directly determines the pricing, the revenue and the costs as well as the competition, the partners, the agreements and the value creation activities. Therefore we

see the financial aspects as a mediation layer between all the other elements of business model. As supporting methods, we introduced three independent cross-sectional layers to support the decisions when designing specific business model elements like pricing, value intention and so on. Our work with partners has revealed that it is not easy to just describe the value proposition or to just describe a potential pricing model. Therefore, these layers contain related methods which help to design and decide. We introduced this concept, because oftentimes in given literature, there is no clear description on how the business model concept is related to the existing economic research with methods like the balanced scorecard, the well-known value chain theory or existing pricing methodologies. As a result, the design support for the whole business model design process is carried out with the help of existing Tools and Methods, like the financial calculation, the description of the customer with a customer empathy map etc. The Strategic Aspects help to decide, to which business model element which existing strategic methods have an influence on the design of the element. For example the design of the pricing model is directly related to the market strategy of the company (e.g. cost leadership, quality leadership etc.). By using this method, the business model designer can easily decide the specific design of an element by considering the related (and described) strategies which have influence on this element. The Sources of Information & Data-Layer is a tool for decision support as well. A repository of market data can be made available to the business model designer. The intention is to support e.g. the forecasting of financial calculations by providing realistic pricing data. A typical scenario would be to integrate the prices of different infrastructure-providers (provided through the repository) to calculate the costs of outsourcing the infrastructure to an external partner. The derived business model is based on the approach of [15], where we introduced the idea of business model

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Value Approach

Value Approach

Financial Aspects

Market Interface

Financial Aspects

Market Interface

Value Creation & Capabilities

Products & Services

Value Creation & Capabilities Variant 1 Variant 2 Variant 3 Variant 4 Variant 5 Current Business Model

Products & Services

New value proposition and foster customer/partner experience Rethinking target customers and partners Product and service innovation Business process redesign, extend/focus core competencies Financial Redesign Current Business Model

Figure 2. From isolated innovation-initiatives to a closely coupled business model innovation.

dynamics the first time. Therefore the concept is called [moby], which is currently the nickname of the concept meaning methodology for business dynamics. The background of this concept is to efficiently support the decisions when designing and innovating a business, at early stages of business model design as well as at the operational stage of running a business. Fig. 2 shows the target of the approach to lead business development innovation from an element-driven approach to a holistic approach incorporating all information provided by the business model. Instead of thinking about innovating separate business model elements like via product- and service-innovation, the thinking in business model variants helps to keep an eye on all important aspects of a business model. Thus the [moby]-business model reduces the risk of doing isolated innovation without appreciating the other influencing factors on a business model. VII. EXISTING APPROACHES To compare the approach with existing models, we identified the domain-specific requirements of internetservice business models. Thus, this comparison is specific to support the design of an internet-service business model. The most differences can be identified in the following application-domains: Scope of the model The model should integrate the specifics of internet services, like service levels and agreements with partners/ customers or the sharing of revenue. In the previous section we already introduced the most important specifics. Formalization of the model The model should be described in an easy, visually supported way to easily understand and apply it. Additionally there must be a formal description available to implement an adequate software-support for the business model design process, e.g. formalized as OWL, RDF or UML.

Software-Support There should be some kind of software-support since various business model variants, integration of market data and especially the financial forecasting are hard to achieve without persistence of the models in electronic form. Moreover, the number of documented use cases can be increased easily with a software-tool. Many current business model methods do not have publicly available use cases. In contrast to that, e.g. for Osterwalders BMO there is a great number of use cases available. Availability of the model - The designed business model should be further available to business users of a company. The modeled information, once available as formal description, could be integrated in other business decisions. A possible use case is the integration of all available external services to be used in a business process. The switch between partners can be easily arranged by looking into the business model, where all potential external partners and services are modeled. Another use case is the switch of the pricing models, e.g. when users reach a specific limit of service-usage. Thus an operational usage of the business model is imaginable. Integration of available methods, tools and data for the design process Another important aspect is the integration of existing economic research methods and tools to support the design process of business model variants. We already mentioned the crosssectional layers in the previous section. This is mainly to support the business model design process with additional knowledge. We identified gaps at all these application-domains of the business model design process with currently available methodologies and therefore developed the [moby]-business model ontology based on the already mentioned sources.

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TABLE II.

MATCHING OF THE ELEMENTS OF EXISTING APPROACHES WITH THE [MOBY]BUSINESS MODEL ONTOLOGY
Bouwman, Faber, Haaker et al. 2008 STOF-Model Gordijn, Akkermans 2001 e3-Value Kett, Scheithauer, Weiner et al. 2009 ISE-Method [moby]Business Model Ontology - Element Value Approach

Osterwalder 2004 BMO

Value Proposition -

Intended Value Perceived Value, Delivered Value -

Value Object/ Port Value Object

Value Proposition -

Value Intention Customer Experience

Value Object

Partner Experience Market Interface

Distribution Channel, Link Target Customer

Customers, End-users, Market Segment Relations Value Network, Actors, Roles -

Market Segment, Actor Actor, Composite Actor Actor

Distribution Channels Target Customers

Distribution Channel Target Customer

Table 2 shows the comparison of the introduced business model elements with the most important existing approaches from the authors viewpoint. As the table shows, the main gaps between the approaches are located at the value approach, the market interface and the financial aspects. None of the approaches explicitly includes the partner value and the partner experience, because this is a specific problem of service offerings in a network of partners. Only one approach explicitly introduces the actual experienced value of a customer, although Gordijns approach is generic enough to simply use an additional value stream. The approaches oftentimes do not include the distribution channel or the business partner relationship. Additionally we identified the need to model the competitors which are related to our services and products. Many authors see the competition as an external influence, but for the special intention of supporting business model design decisions, it is important to formally integrate the related competitors and to publish them directly in the ontology. Otherwise there is the risk to design the various business models variants isolated from the competition. VIII. THE DERIVED [MOBY]BUSINESS MODEL ONTOLOGY This paper shows the first draft of the ontology, which is going to be further developed based on the feedback of service-providers and project partners. Due to pagerestrictions and the readability of the document, only selected elements and relations are shown. The complete ontology is available in an OWL-formalization at www.itbusinessmodels.org (section sources). Fig. 3 shows the elements of the business model ontology including the most important relations between the elements. Inverse relations have been left out. The ontology is formalized using the Web Ontology Language (OWL). Listed below, we will shortly introduce the elements and relations. The Value Intention describes the intended value. It is possible to formulate parts of value intentions which form a more complex value intention. To describe the value intention, the Empathy Map developed by the company XPLANE is a possible tool. We directly support the Empathy Map in the software-prototype. It describes what the customer is seeing, hearing, thinking, feeling, saying and doing. Value Intention elements can be directly connected to target customer experiences.
targets isAtRiskThrough isRefinedBy isReflectedBy Target Customer or Partner Competitor Value Intention Customer Experience or Partner Experience Product Offering or Service Offering or Complementary Offering

Relationship Partnership, Agreement Actor

Relationships External Cooperation Partners -

Customer Relationship Business Relationship Partner

Competitor Products & Services

Offering Offering (Agreement) (Offering)

Delivered Value Delivered Value (Delivered Value)

Value Offering Value Offering (Value Offering)

Service Offers (Service Offers)

Product Offering Service Offering Service Level Agreement Complementary Offering

Value Creation & Capabilities Activity and Value Value Value Activities, Activity Configuration Value Network Capability Resources and Value Object and Resource Capabilities, Actors Capability Resources and Value Object and Resource Capabilities, Actors Business Process in/tangible Resources in/tangible Resources Business Process

Capability

Resource

Financial Aspects Revenue Stream and Pricing Pricing Method Attribute Cost, Account (Cost, Account) (Agreement) Revenues Value Object Revenues (Pricing) Revenues (Pricing) Costs (Costs) Revenue

Tariff (pricing), Bundling Costs (Costs) Capital Financial Arrangements

Pricing

Value Object (Value Object) Value Object -

Expense Potential Expense Investment Revenue Sharing Mechanism

isIntendedBy

The Customer and Partner Experience reflects the observed value and shows the gap between intended and

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Value Approach

Market Interface

Financial Aspects

Products & Services

Value Creation & Capabilities

Customer Experience

causesExperience

offersRelated isOfferedWith Pricing

Product & Service Offering creates

Competitor intends

influences

leadsTo experiences Customer/ Business Relationship refines targets Revenue isMaintainedWith refines usesSimilar targets Target Customer (Group ) providesInputFor delivers generatesSharedRevenue Complementary Offering refines Revenue Sharing Mechanism isMaintainedWith targets Agreement isInvolvedIn isAspectOf contributes isAspectOf conceals isSetUpWith Potential Expense causes Partner Expense experiences Partner Experience invests causesExperience Investment holds provides requires requires causes causes refines Capability Distribution Channel targets reflects operates Resource requires isOperationalBaseFor integrates creates Business Process isOperationalBaseFor isOfferedWith

reflects isRiskFor

targets

Value Intention refines

deliversTo

negotiates

isAspectOf

Figure 3. The [moby]Business Model Ontology domains and the corresponding elements and relations.

experienced value. Possible sources to observe the experience are market research methods and customer satisfaction data.
reflects isExperiencedByCustomer isExperiencedThrough Value Intention Target Customer or Partner Distribution Channel or Product Offering or Service Offering or Complementary Offering or Agreement

experiencesCustomerExperience providesInputFor creates isTargetedBy isBeingDeliveredVia isConnectedVia

Customer Experience Business Process Revenue Value Intention or Pricing Distribution Channel Customer Relationship

The Distribution Channel describes the possible channels to deliver a value to the customer, e.g. platforms, on-demand or as hardware appliance. A distribution channel can be operated by a partner.
deliversTo isOperatedBy delivers Target Customer Partner Product Offering or Service Offering or Complementary Offering

The Partner describes all details about actual and potential partners. This includes the resources, capabilities or complementary offerings they provide and their roles (e.g. venture capitalist, value adding reseller, provider, intermediary etc.) and their relations to revenue sharing mechanisms. Additionally it is known if the partner has contact to critical customer data.

The Target Customer describes the details of the target customer (groups). Beside individual facts of interest, the expected minimal, average and maximum number customers should be declared. This ensures a possible financial forecasting for different business model variants.

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experiencesPartnerExperience holds provides isInvolvedIn operates negotiates isTargetedBy isConnectedVia invests

Partner Experience Capability Resource Agreement Distribution Channel Revenue Sharing Mechanism Value Intention Business Relationship Investment

needs integrates causes getsInputBy creates

Capability Resource Expense Target Customer Product Offering or Service Offering or Complementary Offering

The Revenue is gained through the selling and the pricing of a service. There are different types of revenues which are potentially shared with partners. The revenue can be directly dependent of the assumed number of customers. The revenue is also time-dependent. It is the counter-concept to the costs.
isSharedVia isCreatedBy isCreatedVia Revenue Sharing Mechanism Target Customer Pricing

The Service Offering describes all details of the offered services. Possible attributes are the type of the service, the level of standardization, the life-cycle phase, the related complementary offerings and sub-services and the related agreements.
isDeliveredVia intends isCreatedWithin isOfferedWith isRefinedBy operateOnBaseOf Distribution Channel Value Intention Business Process Pricing Complementary Offering Agreement

The Agreement describes the formal agreements between the actors. This includes service level agreements related to service offerings but also other types of contracts, e.g. between a partner and the customer. Using this concept, it is possible to create e.g. business model variants where partners do not have any contract to a customer. Agreements can comprise of other agreements.
isSetupWith refinesSLA conceals isOperationalBaseFor involves isRefinedBy Partner Service Level Agreement Potential Expense Service Offering or Complementary Offering Partner Agreement

The Pricing describes the various pricing models which are valid for an offering. For the description of the pricing we used the official milestone M2 of the Unified Service Description Language (USDL) module for pricing. See www.internet-of-services.com for more details on USDL and the pricing module. Fig. 5 in the following sections show a screenshot of the pricing module implementation in [moby:designer]bm. The pricing of a service can have different price plans with different periods of validity, which means that e.g. one price plan can expire on a special date and another price plan becomes valid. A price plan has further attributes like currency and a maximum price amount as well as a minimum price. Price plans usually consist of more sub-elements like price components, price levels and price metrics. Additionally price plans can be real pricing options, e.g. one price plan exists for paying subscriptionbased and one price plan exists for pay-as-you-go.
leadsTo targets influencedBy isRelatedTo Revenue Target Customer or Partner Competitor Product Offering or Service Offering or Complementary Offering

The Revenue Sharing element describes the mechanism to share revenues with partners and is the result of negotations.
generatesShared includesAsFactor isNegotiatedWith Revenue Expense or Potential Expense Partner

The Business Process element describes all processes which create value in a business model. It is related to resources and capabilities required to execute the process. Capabilities and resources can be provided by external partners or require an investment. It is possible to have partners and customers involved in a business process. We refer to the MIT Process Handbook to include typical standard process types.

IX. CONCEPT OF A SOFTWARE-PROTOTYPE FOR THE SUPPORT OF BUSINESS MODEL DESIGN AND EVALUATION A. Exiusting Tools Currently business model design is not sufficiently supported by software tools in the area of software-services

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Figure 4. Screenshot of the [moby:designer]bm in an early stage of development.

offered over the web. There are two approaches which directly support business model ontologies. The website http://bmdesigner.com has implemented a software support for the Osterwalder BMO. The bmdesigner is a pure online-tool accessible via the website. It is possible to do a textual-oriented design of business model cases, to save and to discuss them with others. The tool does not include financial forecasts or show different perspectives on one element. The relations between the elements are modeled in a textual way. Like the BMO by Osterwalder, the implementation is targeting at the very early phases of business model design. It is an adequate tool for brainstorming sessions and discussions about business model ideas. For the comparison and evaluation of business models, the implementation lacks of further functionality. There is another implementation for the BMO in progress to be published on the iPad-platform. We cannot give details since it is not yet available (time of submission). Another tool is the e3-value editor available at http://www.e3value.com. It explicitly supports the e3-value ontology by Gordijn and is platform independently available. After installation, the tool has a clear front-end and clearly targets at users of the value stream-oriented business modeling. In contrast to the bmdesigner, the tool is more focused on describing the relations following the ontology it

is based on. Because of the abstract concept and the larger range of functionality, the tool needs a bit longer training period. Other specific tools for the business model design could not be identified, although the electronic business model design oftentimes is done using simple Presentation/ Illustration/ Diagram-Editors like Microsoft Power Point or Visio. We want to mention, that a typical method for the very early business idea-brainstorming phases is to use only paper and pencils. To support the design of business model variants based on the introduced ontology, the [moby:designer]bm is currently implemented. This is a software-tool, supporting the complete ontology. Fig. 4 shows a current developmentscreenshot. The screenshot shows an example of a business model with various elements. The upper part provides a toolbar with common functions like saving, printing, undo, redo and various zoom-functions. Additionally the toolbar provides access to generic business model functions like the Financial Dashboard and the Competition Dashboard (see below).

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Figure 5. Screenshot of the [moby:designer]bm editor for modeling the pricing model (based on USDL-specification M2).

The left side provides all required stencils to design a business model according to the previously introduced ontology. The mid-pane is the design area and elements can be added via simple drag and drop. The ability to connect the elements via edges follows the previously introduced ontology. The screenshot shows an overlay where the customers perspective can be modeled on the upper part of the modeling area (based on the so called Empathy Map by XPlane). More details follow in the next section. Additionally the screenshot shows an example of a time-dependent revenue-diagram of a service offering (at the right side of the editor). In the screenshot it is filled with random data to visualize the chart-functionality. The [moby:designer]bm is intended to support a financial calculation based on the expected number of customers, revenues, pricing models, costs and investments. To support modeling the pricing model alternatives, we use the pricingmodule of the Unified Service Description Language as conceptual basic (USDL, see [13]). Fig. 5 illustrates the creation of a pricing model with selected USDL-expressions. The tool is pure on-demand software and is based on the Oryx-Editor environment which has been developed at the German Hasso-Plattner-Institute (see http://oryx-project.org for details). A public alpha-release of [moby:designer]bm to collect feedback and suggestions for further improvement is intended to go live until august 2011 at the latest. On www.itbusinessmodels.org we will publish all related details. X. THE ONLIVE CASE We already published a simple example in [12], where we introduced our birds eye perspective on the Facebookbusiness model. We want to introduce another example by

illustrating an innovative cloud computing business model. OnLive is an entertainment service-provider offering highend games to be played over internet. The company offers these games as a video stream coming out of the cloud infrastructure of their telecommunication partners. After many years of hidden development of video compression algorithms and hardware, the company went live in the year 2010. Fig. 4 already illustrates the most important components of the OnLive business model. The business model aspects we mention in this contribution are the authors interpretation of publicly available information from the OnLive-website, the Wikipedia-entry related to the company and press releases as well as publicly available interviews. Please note that the revenue-chart shown in Fig. 4 is a fictive one. We do know the public available information about the pricing from the website. Other financial components like costs (per resource, partner etc.) and revenues (related to the pricing and the number of customers) are not publicly available and thus not part of this case. A. The Target Customers The target customers are people who want to play games, especially (graphical) high-end games. Target customers are mobile or using the service at home. Target customers are frequent and infrequent gamers at the same time. A very interesting group of target customers are what we call game explorers, people who want to try games, but do not want to buy the complete game and who do not want to install gigabytes only to test a game for some minutes. For this first phase of the business modeling this is enough detail of the target customer. B. Value Intention OnLive has a very different value proposition than other entertainment providers. The left side of the business model

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shown in Fig. 4 shows the main values around their Game Service-offering: Free the user of hardware and platform requirements. The user needs a computer which is connected via broadband to the internet and which is able to play videos. Location-independent high performance gaming, as long as broadband is available. Remote Game and Profile Management. Different pricing models, from subscription to pay-as-you-go. Probably there are more values one can identify in a business model workshop. For this contribution we want to stay at this level of detail. Fig. 4 shows the Empathy Map we already mentioned on the upper part of the editor. The Empathy Map is a simple but effective concept to put oneself in the customers shoes and to further describe the target customer in more details. The team of business modelers tries to imagine what the customer is thinking and feeling, hears, sees, dos and says and what the customers pains and gains are. Theses notes on the Empathy Map are now connected to the previously modeled value intentions. This way, you can find out very fast which attributes of the customer are currently left out in your value proposition, which pains you can ease etc. It is extremely important to rethink about the customer when offering new values with a service offering, especially when a provider is shifting from a product to a service offering. We like this simple concept and currently support the simple modeling of an Empathy Map in the [moby]-editor. In case of the Onlive Game-Service a possible note on the map from the customers viewpoint could be I only want to test a game and then decide if I buy it (Empathy Map area: think). There is an additional value proposition targeting game publishing partners. Some partners do probably have monetary advantages and others do have a non-monetary value proposition formulated by OnLive. As an example, game publishers like Electronic Arts benefit from the service because of a direct value proposition: The games cannot be illegally copied anymore, since the game is not installed at the home-pcs but in datacenters of telecommunication and hosting partners. Additionally OnLive says that they offer a special SDK and publishers do not need to reimplement their games for this service. It is important to mention that publishers currently develop a game for various pieces of hardware like pc, mac, console and even mobile operating systems like android and iOS. Thus a platform without the trouble of re-implementation can be a real value for the publishers. OnLive offers direct in-game advertising which can be controlled by the publishers. This is a common type of advertising used by the publishers today.

C. Product & Service Offering OnLive offers the gaming service, that means delivers the video-stream. This is a pure service offering which is combined with a product offering for some customers. The MicroConsole TV Adapter is a piece of hardware, customers can use to get the stream directly to their television. D. Distribution Channel The distribution channel is mainly the web and more precisely the browser with a special plug-in, required to receive the video stream and to exchange the mouse and keyboard interactions. The main browsers are supported for different platforms. Another option is the tv-adapater to receive the video stream and exchange the interactions. E. Resources To successfully perform, the company requires special resources and needs to decide whether to outsource resources to a partner, acquire companies providing theses resources or to create them itself. In this case the creation and patenting of some kind of video compression algorithm is crucial for the service and the company creates it itself. The creation of some kind of hardware compression chip is probably done together with a strategic partner. To provide the high bandwidth, the storage and the required performance, it is highly advisable to cooperate with telecommunication partners. This is a difficile business and in this case not part of the core activities of the service-provider, although it is important to know about server-infrastructure, virtualization techniques and high-performance computing to adequately develop the video-compression software and hardware. F. Partnership & Competition To provide a working service, various partners are involved in this business model. We already mentioned publishers and telecommunication partners. Other partners are probably involved in the hardware production of the tvadapter and the corresponding input devices. Possible competitors can be found on the game console market, like Microsoft (xbox) or Sony (playstation), because of the MicroConsole TV Adapter-offering. Other competitors appear with providers of browser games, although they do not offer high-performance games. The closest external offerings to the OnLive service are probably providers offering direct and immediate game downloads like the Steam-offering (valve). At this time it is hard to find a competitor offering the exact same value proposition to the customer. OTOY and Gaikai are two examples of service providers creating a direct field of competition to OnLive, but at the time of this contribution those competitors are not yet on the public market with their offerings. G. Financial Aspects To estimate the revenue and to evaluate different pricing models, it is possible to give attribute-values to the customers. This is not shown in the screenshot. Currently the tools supports three ways of revenue assessment. Based on the minimum, average and maximum number, it is possible

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to evaluate each modeled pricing and see the cash-flow over time in the Financial Dashboard. OnLive has various investors including AT&T Media Holdings, Lauder Partners, Warner Bros., Autodesk and Maverick Capital. The [moby:designer]bm integrates the possibility to integrate these investors directly into the business model. It is possible to create direct investment streams in the model and connect them to the corresponding investor. Additionally, the Competition Dashboard reveals information about a competitors investors. Currently the free service crunchbase.com is used as source of information of this type. XI. CONTRIBUTION AND FUTURE WORK Concluding our findings we mainly contribute to business model research streams such as business model innovation and service engineering. Additionally, the submission has practical implications for IT-vendors. By introducing an empirically derived business model framework using a state-of-the-art software approach, the findings can contribute e.g. to business model design workshops with business owners. Utilizing the introduced framework and the software-approach, later research to be carried out by the authors focuses the further development of the ontology and the software. Main challenges have been identified at the further integration of existing methods in the ontology and the integration of real market-data in the software-tool. In addition, a step-by-step procedure to apply the ontology and the software in various ways, depending on the initial situation (like startup-phase), is still in evaluation phase. ACKNOWLEDGMENT The project underlying this report was funded by the German Federal Ministry of Economics and Technology under project funding reference number 01MQ07017. The responsibility for the content of this publication lies with the author. REFERENCES
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