DEVELOPING A DYNAMIC BUSINESS MODEL FRAMEWORK FOR EMERGING MOBILE SERVICES

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Nov 16, 2013 (4 years and 1 month ago)

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DEVELOPING A DYNAMIC BUSINESS MODEL FRAMEWORK FOR
EMERGING MOBILE SERVICES


Björn Kijl


Björn Kijl, Delft University of Technology, Faculty of Technology, Policy, and Management,
Section Information and Communication Technology, PO Box 5015, 2600 GA, Delft
, The
Netherlands,
bjornk@tbm.tudelft.nl


Harry Bouwman, Delft University of Technology, Faculty of Technology, Policy, and
Management, Section Information and Communication Technology, PO Box 5015, 2600 GA,
De
lft, The Netherlands,
harryb@tbm.tudelft.nl


Timber Haaker, Telematica Instituut, Expertise group ‘Creating Value in Business Networks’,
PO Box 589, 7500 AN, Enschede, The Netherlands,
timber.haaker@telin.nl


Edward Faber, Telematica Instituut, Expertise group ‘Creating Value in Business Networks’,
PO Box 589, 7500 AN, Enschede, The Netherlands,
edward.faber@telin.nl


JE
L
-
Codes:

L21, L63, L86, M13, O32, O33


1 The growing importance of business model innovation

In a world where consumer electronics (CE), information technology (IT), telecom, and
media are converging, tremendous opportunities for (user centric, demand base
d, and context
aware) mobile services are emerging. With increasing marketplace dynamics and rapid
technological developments, the ability to imagine and combine different, formerly separated,
technological capabilities in order to facilitate new and valua
ble user experiences will be a
key factor. To be able to offer these experiences, new business models are needed
[10]
.

Based on a survey of 4,018 executives worldwide and in
-
depth interviews with leading
decision makers, the Ec
onomist Intelligence Unit
[8]

finds that companies that best
understand dynamics like the ones mentioned above and adapt fastest to the emerging
business landscape with innovative as well as adaptive business models will be the

likeliest to
prosper. In other words, innovative and adaptive business modeling is critically important to
the future of (technological) innovation. There are many famous cases in which companies
have developed disruptive technologies, but have failed to
capitalize on them with viable
accompanying business models. For example, the Xerox Palo Alto Research Center (PARC)
invented a lot of interesting technologies but the shareholders of Xerox Corporation didn’t
profit as much from these innovations as others

did [6]. Eventually, the ability to innovate
with business models and revise them regularly is equally important as innovation in products
or services [8] because successful innovations often need innovative business models as much
as innovative product o
fferings
[5]
. This is especially the case in the domain of mobile
technologies, networks, and services.


2 Goal and contribution of this study

Despite the promising opportunities and huge investments in 3G+ technology and netwo
rks, it
is still unclear how sustainable business models of emerging mobile services will look like.
As a result of the radical transformations within the mobile services industry, many tested
business models, as well as related frameworks, tools, and tech
niques, have become obsolete
[3]
[17]
. Whereas in practice we see business models, especially in a dynamic industry like the

2

mobile services industry, change over time, literature, with a few excepti
ons
[4]
[18]
[33]
, still
takes a static view on business models. The objective of this paper is to propose a dynamic
business model framework for emerging 2.5G and 3G+ ser
vices, which should help nodal
actors within value networks to create customer and network value over time. More specific,
the framework should, in the form of a business model evolution process model, help to
analyze as well as govern dynamics of 2.5G and

3G+ services
by providing high
-
level insight
in the mechanisms behind business model changes. Unlike other business model research, we
look at the dynamic character of business models by integrating venturing and life cycle
phasing concepts as well as ext
ernal influential factors on business model evolution into our
framework. The framework will be validated on the basis of an illustrative case study by
using the framework for shortly describing the business model dynamics of OP3, a company
that pioneers w
ith direct connection technology.

Although the framework will be specifically
applied to mobile services, it is expected that the framework may also be valuable in other
contexts (e.g. e
-
service business model development).


In order to position and develo
p the framework, we focus on business model
and value
network
literature and literature describing phasing concepts that can be used to describe the
evolution of business models. We also look into (high
-
level) factors influencing business
model dynamics.


3 Business models and value networks: a concise literature review

Over the past few years business model research has developed from defining business
models, via exploring business model components and classifying business models into
categories, to deve
loping descriptive models (for an overview see
[25]
).

The business model
concept plays a valuable role when simulating, analyzing, and understanding current or new
business concepts and exploiting these concepts
[24]
. Besides, it supports managers
communicating their ideas and visions about their company and its management to parties
concerned.


In most business model definitions, we see, directly or indirectly, the assumption that a
business model
should describe ‘business logic’ behind value creation with a specific product
or service. Main question then is how to create value, for the organizations as well as for their
customers. In our view, a

business model describes the way a company or network

of
companies aims to create customer and network value
[11]
.


Moving away from
business model definitions, the focus of business model research was
directed to business model components. Based on an extensive literature revie
w
[9]
[11]
, we
select the following four generic business model components for our business model
framework:




Service Domain: the service concept and value proposition that organizations want to
offe
r



Technology Domain: technical functions and architecture needed to realize the value
proposition



Organizational Domain: agreements concerning the cooperation between
organizations to deliver the value proposition



Financial Domain: costs, investments, reve
nues and risks, and agreements on how to
divide them among organizations


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These four components can be used to describe the internal logic of business models and are
similar to the components as for instance used by Osterwalder & Pigneur
[24]
. A graphical
representation of the business model components is shown in Figure 1.


Figure 1 Components of a business model


A majority of business model researchers (e.g. Tapscott
[30]
; T
immers
[32]
; Weill & Vitale
[35]
) focus on the actors, relationships, and value objects being exchanged when describing
business models. Hereby especially the organizational and to a lesser extent a
lso the financial
component of business models get attention. For describing and visualising how value is
created concepts like value chains, value networks, and value shops are being used
[29]
.
Because of the strong emphasis o
f business models on value creation by, mostly, a group of
actors, business models and the value creation system concepts as mentioned above are
strongly related and intertwined: changes in a business model mostly lead to changes in how
value is created in

e.g. a value network and vice versa. Essentially, all business models are
variations on the generic value creation system underlying all businesses
[19]
. In the end, a
viable and feasible business model should always deliver v
alue to customers as well as to all
other participating actors in the value creation system. Financial arrangements and
organizational arrangements may play an important role in this context
[11]
.


Looking specifically at mobil
e services, we see that the value networks of emerging mobile
services are more dynamic and complex than the old, rather static telecom centric value
chains for mobile services like voice communication: the old telecom value chain is slowly
deconstructing
and transforming towards a more complex value network with the entrance of
new players and stakeholders
[17]
. It is expected that more and more flexible value networks
will arise and replace the current, more traditional, stati
c and linear value chains
[22]
. These
new value networks have more as well as new players from different industries. These players
are increasingly operating in each others, formerly separated, markets like IT, telecom,
consume
r electronics, and media
[10]
. By having a value network view, organizations are
better able to recognize structural changes like this shift from traditional competition to
complex networks of organizations
[34]
.


An important aspect of mobile service value networks is that
often one or more leading actors
(nodal companies or orchestrators) in the value network can be identified
[20]
. These types of
actors are the most po
werful and therefore define where the centre of gravity and power of
these value networks are. They also have a profound influence on business model (re)design.
Therefore, it makes sense to think about where the centre of gravity in a value network lies

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an
d how and why it could transform in the future, in order to decide the feasibility of a
(re)designed business model for a specific service. Especially actors with critical roles (like
providing access to customers, offering communication network facilities
, and taking care of
billing), such as (mobile) telecommunication operators, have relatively powerful positions.
However, opportunities emerge for service and content providers to (partially) by
-
pass these
operators, for instance by making use of direct bi
lling technologies.


4 Business model dynamics: phasing and factors of influence

In discussions on business models concepts, the relation between external influences and
business models is mostly missing. The same goes for the distinction of phases or key
decision moments in business model evolution. In this section, we try to identify which
dynamic phases for business models can be distinguished and which (high
-
level) external
factors may be of influence on business model changes.
Hereby, we focus on facto
rs which
may have a disruptive effect on the evolution of business models and may lead to key
decisions with respect to business model changes.
Based on the identification of phases in
section 4.2 and external influencing factors in section 4.3, a conceptu
al framework will be
presented in section 5. Before looking at phasing models and external factors, we will shortly
pay attention to classifications of innovation in relation to business model development.


4.1 Innovation classification

The type of innovat
ion affects the design of the accompanying business model. Although
innovation is possible in several domains like organizational and business processes, most
innovation classification models
focus on the impact that technological changes have on
existing
or new product
-
market positions and the resources and capabilities on which these
positions rest. The classification models to be discussed should help understanding the impact
of technological change on business models since resources and capabilities as
well as
product
-
market positions are core components of (respectively the organizational and service
domain of) business models.


A popular classification dichotomy is the
radical versus incremental change dichotomy. By
making use of this dichotomy, it can

be argued
that the type of firm that is likely to exploit a
technological change is a function of the extent to which change impacts the product
-
market
position and the resources and capabilities of a firm
[1]
. From a product
-
market position view,
a change is radical in economic sense when the change results in products or services that
render existing products non
-
competitive. VoIP services based on P2P technology as offered
by new entrants like Skype, are examples of radical
innovations for incumbent telecom
operators. Such VoIP services may have a huge impact on business models and value
networks of voice communication services of incumbent telecom operators. When
technological change only results in enhancing existing produc
ts or allows them to remain
competitive, we speak from incremental innovation in economic sense. An example of such
innovation is the addition of caller ID functionality to current voice communication services.
From a technological capabilities view, techn
ological change can be seen as competence
-
enhancing or incremental from an organizational perspective if the capabilities (e.g. skills,
knowledge, assets, and resources) required to exploit new technology are built on existing
firm capabilities. If the cap
abilities to develop new technology are radically different from
existing ones within an organization, the change is said to be radical in organizational sense,
or competence destroying. In such a context, existing cultures, resources, and capabilities of
incumbents may not only be useless but may even have destructive effects (think of operators
dawdling over implementing completely IP based services and architectures). New entrants

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do not suffer from these problems, and therefore are more likely to develo
p products and
services based on new technology (i.e. Skype).


The disruptive versus sustaining change model of Christensen
[7]

focuses on disruptive
innovation and can be related to
the
radical versus incremental change dichot
omy
. Whereas
sustaining innovation simply makes a product better, disruptive technological change creates
new markets by introducing a new kind of product or service, which costs less than existing
products or services based on old technology. Initially, t
hese products or services perform
worse than existing products when judged by the performance metrics that existing
mainstream customers value. Later, the performance is getting better and also addresses the
needs of these mainstream customers. When a disr
uptive technology emerges, incumbent
players are generally unable to respond without hampering their current businesses and
making important changes in their business models in order to be able to survive. However,
finding a good business model for a disru
ptive innovation is usually not obvious (patenting
disruptive technology is mostly difficult). Therefore, in early phases (R&D) organizations
mostly focus on perfecting the technology, whereas in later phases the focus is on revenue
generation
[18]
.


A radical or disruptive as well as incremental or sustainable technological innovation may
lead to important changes in the structure of value networks and in the business models of the
actors of these value networks. It is importan
t to mention that the same innovation may be
classified differently for different actors in a value network. For example, VoIP telephony
services may be seen as disruptive for telecom operators, whereas they may be only
incremental for mobile phone manufac
turers. The emergence of faster processors and
increasing storage capability radically changed the business model of Encyclopaedia
Britannica Inc., whereas these improvements were not disruptive for computer manufacturers.
Therefore, classifying an innovat
ion is not a straightforward process. An incumbent player
like Xerox for example took years for developing a good small plain paper copier while it was
the inventor of the core technology of xerography. Building a paper copier appeared to be an
incremental

innovation but in reality the company had to innovate on an architectural level by
focusing on components and linkages between them
[12]
. Based on these observations, terms
like architectural and modular innovation emerged. Th
is means that,
although the dichotomies
mentioned above classify innovation into just two categories (radical/disruptive versus
incremental/sustaining), the spectrum of possibilities is spread over a continuum in practice
[18]

and is actor dependent as well.


In spite of the limitations and difficulties stated above, determining the type of innovation
may be a helpful starting point for business model development because it can give important
clues for developing suitable busine
ss models and value networks in order to be able to
capitalize on an innovation. For instance, radical or disruptive technologies are likely to be
offered by new entrants, mostly starting with a below average, but improving quality.
Furthermore, incumbent
players may have difficulties with capitalizing on architectural
innovations as well as on radical or disruptive innovations but can profit relatively easily from
incremental innovations.


4.2 Business model development: three main phases

In the end, the s
tarting point for every mobile service is ‘just’ a convincing business idea. The
development process from business idea to established business can be divided in different
phases
[16]
. Phasing models help to understand the evol
ution of the competitive landscape
following an innovation or change, as well as the impact of an innovation or change on firm

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strategies and business models
[1]
. These phases are conceptualized in several disciplines. We
have
shortly examined phasing from four perspectives: technical service development,
entrepreneurial and business planning, innovation adoption and diffusion, and marketing
respectively. When we compare the phases as distinguished in these perspectives, one can

broadly speak from three main phases: the technology/R&D phase, the implementation/roll
-
out phase, and the market phase consisting of the sub phases market offering, maturity, and
decline (see Figure 2). These three main phases will be used for our dynami
c framework.



Service creation
Service provisioning
Service Developm
. (
Räisänen
)
Concept development
Alpha version
Beta Version
Market offering
Business Planning
(
Rohner
)
Emerging
/
fluid phase
Growth
/
transitional phase
Growth
/
transitional phase
Mature
/
stable phase
Business Planning
(
Afuah
/
Tucci
)

Adoption
Diffusion
Maturity
Innovation Diffusion
(
Rogers
)

Introduction
Growth

Maturity
Decline
Marketing
(
Levitt
)
Time
Technology
/
R
&
D
Implementation
/
roll
-
out
Market offering
Maturity
Decline
Market

Figure 2 An overview of phases from several disciplines


In the technology/R&D phase one typically focuses on technology, investments, and the
development of service concepts. The shift from the technology/R&D t
o the
implementation/roll
-
out phase is characterized by testing of service concepts, field
experiments, first introduction and small scale roll
-
out of services. The service, its business
model, and its supporting technology are mostly not yet totally devel
oped and still open to
changes and reconfiguration. Besides, there may be a possible shift in the service definition or
technology architecture, which may have implications for involved partners. The shift from
the implementation/roll
-
out phase to the mark
et phase is characterized by a shift to
commercial exploitation, after market experiments proved to be successful. The adoption rate
should have passed critical mass after which companies start to shift their focus from
capturing markets to the retention o
f market share and the maximization of customer
satisfaction.
In the technology phase and implementation/roll
-
out phase, research institutes,
entrepreneurs, and venture capitalists may have played an important role. In the market
offering phase big compani
es like telecom operators may become more important.


Figure 2 shows that the technological service development and business planning oriented
phasing concepts emphasize the technology/R&D and implementation/roll
-
out phase, whereas
the marketing and innova
tion adoption and diffusion oriented models, not surprisingly, are
more focussed on the market phase.


According to Räisänen et al.
[26]

the technical service development lifecycle includes
functionalities needed to provide a
service from development to retirement. They distinguish
the following activities as part of the service life cycle:
service creation, service provisioning,
and service lifecycle management in general during (during the complete lifecycle). The
service pro
visioning level can be divided in service deployment, service usage, service
retirement, and service operational management. On the lowest abstraction level,
Räisänen, et
al.
[26]

distinguish the following activities on the ser
vice usage level: service discovery,
service selection, service negotiation, service composition, service adaption, service
execution, and service termination.

In each of these phases, there are important factors to
overcome. In the service creation phase,

technical factors are of greatest importance, whereas
in the service provisioning phase one should pay extra attention to environmental factors such
as legislation and market adoption.

It is important to stress that in practice, the process is not
sequent
ial but iterative. It can be seen as a loop in which deployed services may be optimised
based on feedback from an operational network as well as based on other input.



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Also from entrepreneurial and business planning perspective, the development process fro
m
business idea to established business can be divided in different phases. A popular model is
that from Mason and Rohner
[21]
, who distinguish four venturing phases:



Phase I
-

venture vision (validating the concept): the objec
tives of this phase are
putting a plan together that outlines the product or service and its uniqueness, the
market and why it’s attractive, the team and why they are qualified, and a high
-
level
business model and the amount of money needed.



Phase II
-

alp
ha offering (building while planning): in this phase, the objectives are to
build the alpha version of the product/service and its platform, see how it works, factor
in changes and refinements to the basic specifications, and understand and resolve
implica
tions for the venture’s positioning, its business model, value propositions, as
well as the effects on functional strategies and plans of the rest of the venture’s
departments.



Phase III
-

beta offering (testing the concept): in this phase, the objectives
are to test
and refine the product or service and (by implication) the rest of the venture’s
program, gain early market acceptance and customer testimonials from a beta product,
and to use beta stage results to secure funding to do a full market launch. Te
sting the
business model thoroughly is an important key skill in this phase.



Phase IV
-

market offering (calibrating and expanding): the objectives of this phase
are to find customers, become profitable, and get the next version of the offering to
market.


The model of Mason and Rohner
[21]

is mainly aimed at how an organization can develop
and offer a new service. The Internet technology life cycle model as described by Afuah and
Tucci
[1]

has a bro
ader view by phasing the process in which companies in an emerging
industry in general (like the Internet industry) are developing their services and business
models. They distinguish the following three phases:



The emerging or fluid phase: in this phase,
(a lot of) new entrants as well as
incumbent players choose their profit sites and value network positions. There is
competition between new and old technologies and different designs using new
technology. Product quality is low, costs and prices are high,

market penetration is low
with mostly lead users and high
-
income users as customers. Since product/service and
market requirements are still ambiguous, there are few failures in this phase.



The growth or transitional phase: in this phase, a standard or do
minant design defines
a critical point in the life cycle of the innovation. The customer base moves to mass
market. Competition and disappearing requirements ambiguity forces many firms to
exit or make important changes in their business models. Firms with

the best adapted
business models will survive.



The mature or stable phase: in this phase, companies focus on keeping and improving
their competitive advantages. In markets where imitation is easy (e.g. most (mobile)
Internet services), companies continuou
sly make (incremental) innovations in their
business models.


Rogers
[27]

discusses the adoption and diffusion of an innovation in a social system and
defines it as a process with three phases: adoption, diffusion, and maturity
. In the first phase
of the process only a small portion of the members of a social system (the innovators) will
adopt the innovation (so the rate of adoption is still low), but once the early adopters have
joined in the innovation adoption curve rises ste
eply (the diffusion process is gaining
momentum)


and by the time the late majority has also adopted the innovation only the

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laggards are left, who will take considerable time before embracing the innovation. Then,
after the adoption and diffusion of the
innovation, the maturity phase has been reached.


The most popular phasing concept from marketing point of view is the product life cycle
concept, developed by Theodor Levitt in 1965
[15]
[23]
. Based

on the assumptions that
products have a limited life time, product sales pass through distinct stages (each posing
different challenges, opportunities, and problems to the seller), profits rise and fall at different
stages of the product life cycle, and t
hat products require different marketing, financial,
manufacturing, purchasing, and human resource strategies in each stage of their life cycle, he
distinguished four stages: introduction, growth, maturity, and decline. The life cycle stages as
described b
y the more strategically oriented Johnson and Scholes
[14]

are quite similar to that
of Levitt. They distinguish the stages development, growth, shakeout, maturity, and decline.
The shake out stage can be seen as a ‘slowing gro
wth phase’ between growth and maturity in
which users and buyers are growingly selective with respect to buying services and in which
the weakest competitors disappear from the market.


Important critics are that in reality phases aren’t fixed. Instead, th
ere is variability in shape
and duration
[15]
. Besides, life cycles need not to be linear and sequential in practice. Having
a non sequential, iterative view instead of a linear view of life cycles may proof to be
valuable: by
versioning or repositioning products or services, the actual life time of these
products or services can be extended
[23]
. Making these types of changes may also bring
along changes in the underlying business models.


4.3 Exter
nal factors influencing business model/value network dynamics

Businesses don’t operate in a vacuum: a firm’s profitability rests as much on its business
model as on its environment
[1]
. According to Hill and Jones
[13]
, two types of environments
can impact the performance of firms: the industry or competitive environment and the macro
environment. The competitive environment forms part of the macro environment. The
competitive environment itself can
be divided in respectively the market environment and the
organization(s) of analysis.


According to Allen
[2]
, one of the biggest mistakes aspiring entrepreneurs make, is not taking
time to learn about and understand their ind
ustries or competitive environments, in order to
know where the opportunities are and how distribution channels work. Many entrepreneurs as
well as many incumbents also fail to monitor and act on economic macro trends that may
signal opportunities or threa
ts. Both new entrants and incumbent players should analyze both
environments continuously because they may give them clues for designing, changing, and
refining their business models. This is especially true in dynamic industries like telecom and
IT where
ignoring crucial environmental developments may simply lead to liquidation.


On the macro environmental level, frameworks like PESTEL are useful for analyzing
political, economic, social, technological, environmental (‘green issues’), and legal factors
tha
t are affecting organizations. A macro environment analysis may lead to the identification
of structural drivers of and eventually also hurdles to change. Especially, the
combined
effect
of these forces may be important and could lead to phenomena like ind
ustry convergence and
globalization. Analyzing macro environmental factors is especially valuable when used to
understand the differential impact of these external influences, drivers, and hurdles on a
particular industry, market, or organization
[14]
. Main question then is: ‘what is in it for me
or for my industry?’ Based on an environmental analysis focused on differential impact,

9

different scenarios (plausible views of the future) could be developed. Then, based on these
scen
arios one could design alternative business models.


Analyzing
the macro environment is unquestionably valuable. However, in the context of
business model analysis, not all elements may be as relevant. Especially the impact of
technological developments an
d legal or regulatory issues have a direct influence on business
models of mobile services. Technological developments are important because mobile
services are mostly based on technological innovation.
Governmental bodies, such as policy
makers and telec
ommunications regulators, also
play an important regulatory role.


Besides technological developments and regulatory issues,
market dynamics are important in
business modeling context. In the end, the market environment and its dynamics form the
basis for
existence of a product or service
. The priorities of customers


the issues that are
most important to them, including and going beyond the product or service offered


should
always be reflected in the underlying business model and value network of a prod
uct or
service. These customer priorities have a natural tendency to change and therefore value
networks as well as business models should be dynamic by definition and can’t stay fixed.
When the mechanism that matches the service business model to the stru
cture of customer
priorities breaks down, value migration begins to occur. Then, value migrates from outmoded
business models and value networks to new or adapted ones (possibly from new businesses in
the same or even other industries) that are better able

to satisfy customers' most important
priorities at that moment in time
[28]
.


For our business model framework we select
market, technological, and regulatory influences
as main external factors. These partially resemble the f
actors to overcome when
commercialising a disruptive technology as described by MacInnes in his four
-
stage model
[18]
. According to MacInnes, when a new technology is developed, first technological issues
should be solved by id
entifying weaknesses of the technology and provide potential solutions.
In the second stage, environmental factors like potential legal limitations and possibly also
societal and general economic limitations should be overcome. In the next stage building
r
elations with other companies and investors should be main priority. Finally, the business
model should be kept sustainable in the presence of competition, e.g. by offering derivate
products. MacInnes shows that in the service life of disruptive technologi
es in general
different external factors are important in different phases. The same may be true for 2.5G and
3G+ services specifically. This consideration will be taken into account when describing our
dynamic business model framework.


5 Dynamic business

model framework

The results from the literature review of business models, value networks, phasing, and
dynamics come together in our dynamic business model framework as depicted in Figure 3.
Although the innovation classification as described in section
4.1 is not part of the framework,
defining the type of technological innovation on which the product or service to be capitalized
is based may give useful clues with respect to the needed business model and value network
actors and may therefore be seen as

starting point for business model (re)design.



10


Figure 3 A dynamic business model framework


The big blocks in the framework represent business models (with the four distinguished
business model elements: service, technology, or
ganization, and finance). The smaller blocks
surrounding the big blocks represent external influences that may impact business model
evolution. In this model three types of external influences have been distinguished: market
opportunities or threats like i
ncreasing demand for location based mobile services,
technological developments like the emergence of presence technology or WiMAX, and
regulatory influences like the influences of governmental bodies that regulate compliance
with legislation and regulatio
ns. The time line in the model represents our idea that business
models are developing over time and that several phases can be distinguished. It is important
to emphasize the iterative character of business model innovation: a company may pass
through eac
h phase several times.
To show the expected dynamic importance of the
distinguished factors in and between each phase we use the symbols ++, +, and ± in our
framework. The ++ stands for high expected importance, + for medium expected importance,
and ± for
low expected importance. Figure 3 shows that, especially in a technology driven
industry like mobile services, technology in the technology/R&D phase is the most important
environmental factor. In the next phases, the importance of technology decreases. Th
en,
because of the focus on implementation and market offering, the market factor becomes
increasingly important. Especially in the implementation/roll
-
out phase one should overcome
potential legal limitations, which may hinder the market offering of the s
ervice. In the market
phase, regulation still may have an impact, e.g. in the form of legal actions against market
domination. It is important to mention that our importance classifications as shown in the
framework currently are just hypotheses and have n
ot been thoroughly tested yet (see also
[4]

and
[18]
).


6 Short case study: OP3

To test the practical usefulness and degree of realism of the framework as described in the
previous section, we did
a short, illustrative case study. The case concerns OP3, an innovative
start up pioneering with direct connection technology. With its Shotcode concept, a circular
bar coding technology originally developed at the University of Cambridge, the company
makes

the mobile Internet accessible in just two clicks and thereby is radically changing the
way to get access to mobile websites. Downloading a specific mobile wall paper from a
Phases:
Technology/R&D Implementa
tion/Roll out
Market
Techn
ology
Org
Network
Finance
Service
Technology
Regulation
Market
Regulation
Technology
Market
Regulation
Technology
Market
++
++
+
+
+
+
+
+
++
Techn
ology
Org
Network
Finance
Service
Techn
ology
Org
Network
Finance
Service
Technology
Regulation
Market
Regulation
Technology
Market
Regulation
Technology
Market
++
++
+
+
+
+
+
+
++
Time: T
0
T
n

11

mobile web site typically may need more than 100 clicks for entering the address
in a mobile
phone. In contrast, by scanning a Shotcode as depicted in Figure 4 with a small software
application (17 KB) on your phone, mobile content is instantly accessible. A Shotcode can be
placed on posters, T
-
shirts, packing material, business cards,

etc. Instead of getting access to a
mobile website using a walled garden portal with a top down approach, the usage of
Shotcodes can make access to mobile services just as open for the end user as with the current
‘fixed Internet’.




Figure 4 A shotcode to
http://w
ww.kijl.net


Until now, OP3 went, in retrospection, roughly three times through the business model life
cycle framework. According to Dennis Hettema (CEO) as well as Dennis Timmermans
(CFO), the development of their business model was clearly not a linear

but iterative process.


Cycle 1


ScanChooseBuy

In 2003, Hettema started OP3 based on a technological driver (the emergence of camera
phones) as well as a market driver (people started looking at their phones besides holding
them to their ears). Exactly t
hese two factors have been identified as important in the first
business model phase. Inspired by futurist Howard Rheingold in the technology/R&D phase,
Hettema started developing his ScanChooseBuy concept by which people should be able to
scan the barcode

of a product (e.g. a book) in a store via their mobile phone, check if the
product is available for a lower price via the Internet, and eventually buy the product via the
Internet. However, in the implementation/roll
-
out phase, when Hettema was developing

the
service further and tried to make partnerships with several companies, he encountered a
severe technological problem: the quality of the camera phones was too bad for reading the
standard EAN barcodes properly (technological component of business mode
l). Only by using
extra hardware in the form of an add
-
on lens on the camera phone, one could improve the
EAN barcode read accuracy. This was a suboptimal solution. The business model had to be
changed and Dennis went back to the first business model phase
.


Cycle 2


Value added reseller

Market research revealed that there were several alternative direct connection technologies
available (technological driver), one of them already optimized for scanning barcodes with
mobile phones. Most of the companies th
at offered these technologies were very technology
oriented. By making use of his marketing experience, Hettema transformed OP3 to a value
added reseller of available direct connection technologies by helping organisations to turn
mobile commerce into a pr
ofitable business. However, during the second business model
phase (implementation/roll
-
out), it appeared that the position of OP3 in the value network was
not strong enough (organizational component of business model): there was a severe risk of

12

disinterm
ediation of OP3. It seemed necessary to go back again to the first business model
phase.


Cycle 3


Shotcode

Hettema was an expert in marketing but lacked financial knowledge. Therefore, Timmermans,
a financial specialist, was allowed to buy himself into O
P3. As CFO he proposed to simply
buy all the Intellectual Property Rights including barcode technology from a technology
oriented company specialised in barcode scanning with mobile camera phones. With the help
of a private investor, they bought a 2D barco
de platform called Spotcode from High Energy
Magic Ltd., a company founded in 2003 to commercialise research from the University of
Cambridge Computer Laboratory and Laboratory for Communications Engineering
(technological component of business model).
OP3

developed its Shotcode concept (as
described at the beginning of this section) based on this platform. Then, they especially paid
attention to marketing and the service and financial business model components behind
Shotcode. Most technological competitor
s of OP3 used a top
-
down approach: by selectively
targeting big companies they tried to start the diffusion process of their innovations. In order
to stimulate the growth of the Shotcode user base as fast as possible and thereby severely
strengthen its own

position in the direct connection industry (organizational component of
business model), OP3 decided it would be better to have a bottom
-
up approach where all non
-
commercial users may freely use their technology and software and may also create up to
eigh
t Shotcodes for themselves for free. Partially similar to the advertising models as offered
by Overture and Google, commercial companies that would like to make use of Shotcode are
asked to pay a small fee for each time a user enters their mobile website v
ia a Shotcode (e.g.
on a poster).


In June 2005 Shotcode was officially launched (market offering phase). Their concept
received very positive reviews all over the world. With a fast growing user
-
base and by
positioning itself as a hub between the outside
world and the mobile Internet, the position of
OP3 within the direct connection services value network currently looks strong. However, the
mobile industry is a fast moving one. (Technological) changes like the diffusion and market
adoption of a technology

like RFID for example may be a reason to make profound changes
in the business model of OP3.


Unlike OP3, a lot of companies


like record companies in the music industry


are struggling
with business model innovation. Making necessary business model cha
nges may be painful in
the short term but may well be crucial in the long term. Then, the choice becomes easier...
According to the CEO as well as the CFO of OP3, our business model framework may help
companies to recognize and understand the relation betw
een business models and regulatory,
technical, and market changes, recognize the dynamic and iterative character of business
models, and in that way help them to innovate with their business models.


7 Discussion and conclusions

Based on a concise literatu
re review of business models, value networks, phasing models, and
related dynamics, we developed and extended our earlier framework for mobile service
business models (see
[9]
) with an evolutionary and dynamic approach of busin
ess models,
which is mostly missing in current business model research. Therefore, the framework that
comprised of service, technological, organizational, and financial components has been
extended with business model phasing concepts and with an approach
for high
-
level analysis
of (external) market place dynamics like technological developments, market dynamics, and
regulatory changes. The framework proved to be valuable when analyzing the development

13

and innovation process of the OP3 business model. Accor
ding to the interviewees from OP3,
the framework could also be useful in practice.

However, there are some important limitations. We tested the framework with a limited case
study only, consisting of desk research and interviews with the CEO and CFO of OP3
. Our
model still has to be further validated. Besides, the distinguished external factors influencing
business model design and phasing descriptions are really high
-
level and should be elaborated
into lower level elements in order to further improve the p
ractical usefulness of the
framework and to be able to more thoroughly test and validate the framework, e.g. by
longitudinal case study research. Also the link between the external factors and the business
model internal value network perspective should be

elaborated upon in order to be able to
describe and visualize how value is created in consecutive business model phases. Ultimately,
the framework should support developing guidelines for how a group of actors in a value
network can govern their business
models. Insight in business model dynamics may lead to
avoiding unnecessary iterative development steps and path dependency. More research is
planned in order to improve, extend, and test the value of our framework in practice.

Although our research is lim
ited to one single, illustrative case, we conclude that having a
dynamic view on business models seems to be valuable, both from a practical and a scientific
point of view. Integrating knowledge on business models, innovation management, and
related domain
s may lead to more robust models for the analysis of factors that explain the
viability and feasibility of business models and business model design.


Acknowledgements

The research project described here has been conducted within the government funded
Free
band project FRUX (
http://www.freeband.nl/project.cfm?language=en&id=528
). We
would like to thank the people of OP3 for their cooperation and the members of the FRUX
project for their v
aluable suggestions.


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