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Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers Paperback – July 13, 2010
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The Power of “What If” Questions
Content from authors Alexander Osterwalder and Yves Pigneur
…furniture buyers picked up components in flat pack form from a large warehouse and assembled the products themselves in their homes? What is common practice today was unthinkable until IKEA introduced the concept in the 1960’s. …airlines didn’t buy engines for their airplanes, but paid for every hour an engine runs? That is how Rolls-Royce transformed itself from a money-losing British manufacturer into a service firm that today is the world’s second biggest provider of large jet engines. …voice calls were free worldwide? In 2003 Skype launched a service that allowed free voice calling via the internet. After five years, Skype had acquired 400 million registered users who collectively had made 100 billion free phone calls.
... this handbook is likely to prove an excellent help for evaluating business models . (Anatello.com, July 2011).
Find out if you have what it takes to drive innovation in your business [PDF].
Top Customer Reviews
The book is focused on ways to think of the model for your business... with some nice guidelines for structuring the thought process... as well as a bunch of examinations of different types of businesses.
It has good discussions on thinking through what is critical for the business, where the cost structures are, where the benefits are, and how to organize and present those ideas.
It also has a number of cases studies of various companies that changed or invented new business models, such as Amazon's introduction of Web Services.
The book is fast to read, and there were several sections I bookmarked to put into use in my company, which to me is always a good sign for a book.
Where the book is lacking is that I would really have liked more case studies -- a bit more meat so to speak -- once a company came up with the new model, how did the artifacts of the book's discussions come into play with the execution? Did any of the techniques discussed help with the inevitable pitfalls associated? What are some case studies for when people tried the techniques discussed and failed miserably? Innovator's Dilemma, by comparison, does a much better look at both positive and negative case studies, which can provide a lot more learning.
I also would have liked more depth on the blue ocean discussion.
Altogether though, an interesting read and a good addition to my management book shelf.
PROS: Anyone new to these topics would likely have to read four to six separate books to get the broad coverage you'll find here. The authors have done a service for folks who want to come up to speed more quickly. I felt that I came away with some useful info in most of the chapters and each has additional references for further reading. The designers also deserve some credit for a creative and varied layout that makes the text seem fresher. Plus, you can feel good about yourself as you plow through 50+ pages in half an hour without fatigue. The bonus: this is a business book that won't have you drowning in business jargon.
CONS: As several reviewers have noted, there's breadth here but not much depth on the core topics. Those expecting more may be disappointed and some may find the book's suggestive title misleading. Probably more accurate if they called it "A *PRIMER* for Business Model Generation" instead of a Handbook. It's a place to get started, not a definitive resource as the term handbook implies. Finally, the small font sizes that a few reviewers mentioned will surely be difficult to read for those with less-than-great eyesight.
The book is aptly titled, being all about how to generate business models. However, you have to know what it is before you can generate it. To this end, the first section of the book is devoted to introducing a standard language and format for talking about business models. They introduce nine key items which serve as the building blocks for all business models. These are listed below, illustrated with Skype's business model.
CUSTOMER SEGMENTS: Who will use the product?
1) web users globally 2) people who want to call phones
VALUE PROPOSITION: Why will they use the product?
1) free Internet and video calling 2) cheap calls to phones (SkypeOut)
CHANNELS: How will the product be delivered to the customers?
[...] and headset partnerships
CUSTOMER RELATIONSHIPS: how will you develop and maintain contact with your customers in each segment?
Mass customizedMass customized
REVENUE STREAMS: How is revenue generated from which customer segments?
1) Free 2) SkypeOut prepaid or subscription
ACTIVITIES: What are the key things that you need to do to create and deliver the product?
RESOURCES: What assets are required to create and deliver the product?
PARTNERS: Who will you want to partner with (e.g suppliers, outsourcing)
Payment providers, Distribution partners, Telco Partners
COST STRUCTURE: What are the main sources of cost required to create and deliver the product?
Software development, complaint management
These building blocks are laid out on a page in a very specific way, referred to as a "business model canvas". As each chapter unfolds, we get a clearer and clearer understanding of each building block and how to use them to create, evaluate and communicate business models.
The business model canvas can be used to describe any of a wide variety of business models. Patterns emerge which correspond to categories of business models. For example, the Long Tail business model is all about selling less of more. The focus is on "offering a large number of niche products, each of which sells relatively infrequently". This pattern is illustrated with the transformation of the book publishing industry and Netflix.
Another example is the so-called "Freemium" business model used by Skype and countless other Internet businesses. This is compared with the standard Telco model making the two models easy to compare. A similar analysis compares the traditional computer gaming model used by Sony and Microsoft which competes on high performance with Nintendo's Wii business model which focuses on casual gamers and a dramatic reduction in development costs. Visualizing these alternatives on a canvas is very powerful (much easier than the above lists).
The Freemium model is a special case of a more general "multi-sided market" pattern which "brings together two or more distinct but interdependent groups of customers". For example, Google gives away a variety of services to one customer segment, the average web user, and earn income from keyword auctions from advertisers, which comprise the other side of the pattern. As is typical with the multi-sided market pattern, the key resource is the platform which facilitates interactions between the two customer segments.
Another major section of the book is devoted to designing business models. Very explicit instructions and tips are given in the context of an overall process. Different phases include: gathering customer insights, ideation/brainstorming, visual thinking, prototyping, storytelling and scenarios.
A major section on strategy includes a section on how to evaluate existing business models, identifying problems, and brainstorming about possible solutions. Nintendo's Wii is featured. One problem with the traditional gaming model is that consoles are sold at a loss to a relatively small market. By eliminating the huge cost of gaming platform development and adding motion-controlled games with a family focus, the market grew much larger.
The design and layout of the book is equally delightful. It is a cross between a Powerpoint pitch and a regular book, and is easy and fun to read.
The only negative I can think of is the binding. I don't know the lingo, but basically, the front and back (hard) covers are not directly connected to each other. Between them are the sewn and glued sections of the book that are normally hidden. Unfortunately, the book seems to be flimsy. But this is a minor niggle.
Overall, this is a brilliant book. If you have any interest in business models, get it as soon as you can. I got mine by chance on a recent trip to Europe while visiting a colleague. I saw that it was not available yet in the US, so he traded me for my copy of an equally excellent book: The new business road test: What entrepreneurs and executives should do before writing a business plan (2nd Edition).