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Customer Review

on December 14, 2009
This is an absolutely superb book and my first and only book on business models. It is so up to date and filled with gems that I feel no need to read another anytime soon.

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?
Software development

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).
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