billion busienss model course

The Billion Business Model Course

By Marcelo Honores

"Ignore basic economic principles at your own risk. Technology changes. Economic laws do not."

Carl Shapiro and Hal R. Varian inInformation Rules

Agenda

– Introduction

– How to conquer entire markets in the hyperconnected

world

– What to sell and what to share in the hyperconnected

world

– How to create eternal loyalty through customer

communities

– Creating value with partners through business

ecosystems

– Using Information and Communication Technologies to

build the Infraestructure of Cooperation

– The Billion Business Model

Did you know?

– 2004, Google got US$ 23 billion in its IPO

– 2005, eBay Inc. acquired Skype Technologies for US$

2.6 billion

– 2006, Google bought Youtube for US$ 1.65 billion

– 2007, Microsoft bought shares in Facebook for US$ 240

million (Facebook has a market value of US$ 15

billion)

– 2008, Microsoft offered US$ 48 billion for Yahoo

– Etc, etc, etc.

Did you know?

In the last 10 years

there were more than

1,150 web 2.0 acquisitions

for around US$ 30 billion(strategy & business magazine)

Did you know that?

Can we learn somethingfrom them?

– What can we (the mere mortals) learn from them?

– Why are they so valuable?

– What they have in common?

– Are there any rules behind scenes?

– Can I apply these rules in a new venture?

The answer is yes

First lesson

The long tail

The long tail

US$ 3.2 billion US$ 250 billion

Agenda

– Introduction


world


world


communities


ecosystems




How to conquer entire markets in Internet

– To know how to conquer entire markets in Internet, you

need to review the microeconomics theory

– Microeconomics 101

– Microeconomics of traditional goods (the past)

– Microeconomics of shared goods (the present)

– Microeconomics of incentives (the future)

– Warning!!!

– This part can be painful

Microeconomics of traditional goods

(the past)

Price

Quantity

SupplyDemand

P1

Q1

You pay and receive a good or service simultaneously


(the past)

Observations:

• Price = P1 (Price > 0)

• Quantity = Q1

• Benefits of the Consumer = Green area

• Benefits of the Producer = Yellow area

• Typical for physical goods

Price

Quantity

SupplyDemand

P1

Q1

www.dell.com


(examples)

www.travelocity.com

www.jcpenney.com

Microeconomics ofshared goods(the present)

You receive a free good in internet, such as:- free search engine service,- free calls from PC to PC,- free social networking,- etc.

Price

Quantity

Demand

P2Q2

Microeconomics ofshared goods(the present)

Observations :

• Price = P2 (Price = 0)

• Quantity = Q2


• Benefits of the Producer = 0

• Typical for digital goods

Price

Quantity

Demand

P2Q2

Microeconomics ofshared goods(examples)

www.wikipedia.org

www.google.com

www.skype.com

Microeconomics of incentives (the future)

Price

Quantity

Demand

P3Q3

0

You receive an incentive in a social currency such as:- ringtones, - music,- videos,- minutes of calling,- text messaging,- SMS,- etc.

for using or buying a good, mainly advertising

Microeconomics of incentives (the future)

Observations:

• Price = P3 (Price < 0)

• Quantity = Q3


• Benefits of the Producer = 0

• Will be typical in the mobile world

Price

Quantity

Demand

P3Q3

0

Microeconomics of incentives (examples)

search.live.com/cashback

www.virginmobileusa.com/stuff/sugarmama.do

Incentives is a new business model.

This model will be used widely in the mobile world.

Free ringtones, music, videos, minutes of calling, text messaging, SMS, etc. for watching advertising

www.yourexample.com

Microeconomics 101Conclusions

Microeconomic of traditional goods(web 1.0)

• Price = P1 (price > 0)

• Quantity = Q1

• Shared benefits between consumers and producers

• Typical in the physical world

Microeconomic of shared goods(web 2.0)

• Price = P2 (price = 0)

• Quantity = Q2 (Q2 > Q1)

• Consumer gets all the benefits

• Typical in the internet world

Microeconomic of incentives(web 3.0?)

• Price = P3 (price < 0)

• Quantity = Q3 (Q3 > Q2 > Q1)

• Consumer gets all the benefits

• Will be typical in the mobile world

Microeconomics 101Conclusions

• If you share something you will get the maximum demand• If you share something the consumer will get all the

benefits• Therefore to conquer the entire markets in the Internet

world you must to share something valuble for a large group

• If you want to conquer the entire markets in the mobile world you must incentivize your customers

• Don´t worry about free riders• In the hiperconnected world free riders are welcomed

In the hyper-connected world free riders are

welcomed!!!

Agenda

– Introduction


world


world


communities


ecosystems




What to sell and what to share in the

hyperconnected world• To know what to sell and what to share in the

hyperconnected world, you should be aware of the economic properties of the goods:– The Public-Private goods theory– The complementary goods theory

• Warning!!!– This part can be boring

Public and private goods theory

• Definition:“In economics, a public good is a good that is non-rivalry and non-excludable”

• No-rivalryThe consumption of one good by one individual does not reduce its availability for others consumption. In other words: it is not scarce.

• No-excludability. One good cannot be effectively excluded from consumption of one good. In other words: you cannot control its distribution or consumption.

Examples of rivalness

• Non-rivalry goods – Goods never run out (not scarce)– Examples:

• The fact that one use a search engine does not reduce its availability

• The fact that one watch an online video does not reduce its availability

• It is a typical attribute of digital goods

• Rivalry goods – Goods can run out (scarce)– Examples:

• The fact of installing a software in a computer with a license key prevents to installing in an other computer (artificial rivalry)

• The sales of theatre tickets online is a signal of rivalry

• It is a typical attribute of physical goods

Examples of Excludability

• Non-excludability – Difficult control of distribution or consumption– Examples:

• The tragedy of the commons (pastures)• Digital goods are easily reproducible so almost imposible to exclude

• Excludability– Easy control of distribution or consumption– Examples

• Physical goods in a market are easyly to control by their owners

• Accessing a website password protected is an example of excludability

Type of goods acording the Public and private goods

theory

Type of goods Controlable Non- Controlable

Scarce Private goods Common goods / (Common-pool resources)

Non-Scarce Collective goods

Public goods

Private goods




Public goods

Private goods

• They are scarce and the producer can control their distribution and consumption

• Almost any physical good• In Internet: password protected services• In software: Software with license key

Private goods (examples)

www.dell.com

www.travelocity.com

www.microsoft.com

Common goods / Common-pool resources




Public goods

Common goods / Common-pool resources

• They are scarce and the producer cannot control their distribution and consumption

• Commons goods– The planet earth (global warming), water, pastures, etc

• In Internet: website hosting– Typically hard disk and bandwith

Common goods / Common-pool resources example

Collective goods




Public goods

Collective goods

• They are not scarce but the producer can control their distribution and consumption

• They also are known as artificially scarce goods• Examples:• In the real world

– Clubs, cinemas, music concerts, theatres, stadiums

• In the hiperconneted world– Copyrighted goods– DRM goods– Patents– Commercial software– “Walled garden” communities or social networks– Premium/platinum services

Collective goods(examples)

iTunes Store

www.diamondlounge.com

www.aol.com

Public goods




Public goods

Public goods

• They are not scarce and the producer can not control the distribution or consumption

• In the physical world– The beach, national security, city lighting, parks, etc.

• Examples:– Information in general– Digital goods (PDFs, MP3s, GIFs, etc.)– Wikipedia– Google– Yooutube, Flickr (in part)– MySpace, Facebook, and free available social networks – Napster, (in the past), kaaza, P2P in general– Etc.

Public goods Examples

www.wikipedia.org

www.google.com

www.facebook.com

The complementary goods theory

• Complementary goods:– Those directly related, if the consumption of one good

raises, the consumption of the related one raises too (not ncesarily the inverse is true)

– Example• Milk and coffee and bread

• Substitute goods:– Those inversely related. if the consumption of one good

raises, the consumption of the sustituted one lowers (not ncesarily the inverse is true)

– Example• Gasoil with ethanol

The complementary goods theory (examples)

Google: free search engine

Google has around 127 million users per month

Google sells advertising

Are searching and advertising good complementors?

Google sold US$ 16 billion past year

Skype: free calls pc to pc

Skype has around 10 million users per day

Skype sells paid callspc to phone

Are free calls (pc to pc) and paid calls (pc to real phones) good complementors?

www.ipdemocracy.com

Skype sold almost US$ 400 million past

year

Monster: free job searching

Monster has around 20million visits per month

Monster is paid for employers

Are free job searching and paid job posting good complementors?

Monster sold aroundUS$ one billion past year

What to sell and what to share in the hyperconnected world

(conclusions)

What type of good is your offfering?

Strategy

Private Sell

Collective Sell

Public good Share

Commons Discriminate price(part free/part paid)

• You can try also:– Turn private goods into public or commons goods (or

viceversa)– Turn collective goods into public (or viceversa)– Share when your business model is not clear– Make flexible your copyrighted property. Uuse creative

commons licensing instead– Share something and sell their complementary goods


(conclusions)

Agenda

– Introduction


world


world


communities


ecosystems




How to create eternal loyalty through customer

communities


communities• Community is about value flow, not necesarily money• Customer community members help to increase sales

because:– They tend to repeat purchases in online businesses– They attract new customers via “word of mouth”– There is an emotional link rhater than commerical one

• Customer community members help to decrease costs because:– Reciprocity in helping each other reduces technical support costs and improves the consumption experience

– Having communities around products and services engourage innovation

• Strong communities make more valuable your offering– The full restaurant effect


communities

In my opinion community marketing is superior than other Internet Marketings techniques

Community Marketing Other Internet Marketing

• More fidelity• Word of mouth• Viral marketing• Emotional link• It is about value not money• Long term relationship

• SEO, SEM, Adwords and Adsense depends on the mood of Google• Spam is annoying• Affiliate marketing sucks• People don’t trust Advertising•


communitiesAverage users per month - myspace.com 60 million- facebook.com 40 million- linkedin.com 7 million

How to create eternal loyalty through customer communities

Examples

IBM academic initiative

MICROSOFT: Betatesting program

Free training material and software for cumputer science professors

The voluntary beta testing program saves Microsoft around US$ 500 million yearly in software testing


ExamplesSAP encourage participation of the community using several rewarding programs


Examples Communities in politics


communities• Strategies• Wrap your offerings with communities or social networks• Create a social currency

– Youtube-videos, Flickr-photos, Blogger-blogs, etc.

• Encourage participation and WOM, through:– Blogs, forums, reviews, ratings, social networking, etc.

• Look for volunteerism, not all should be about money• Reward the most active participants • Do not discriminate, it allows access to customers and

non-customers• Encourage social innovation: we are smarter than me

Agenda

– Introduction


world


world


communities


ecosystems




Creating value with partners through business

ecosystems


ecosystems• Do you remember Porter’s value chain?

Primary Activities

Sup

port

Act

iviti

es

Margin

MarginInbound

Logistics

OperationsOutbound Logistic

s

Marketing&

SalesService

Procurement

Technology Development

Human Resources

Firm Infrastructure

Cost Profit = $ Price(Customer Perceived Value)

+


ecosystems• Forget it and use the value network


ecosystems• Remember the Porter´s five forces?

Threat of new competitors

entry of new substitutes

Supplier negotiation

power

Customer negotiation

power

Rivalry among competitors


ecosystems• Forget it and use the value network

Cooperation with

Competitors

Cooperation with

Complementors

Cooperation with

Suppliers

Cooperation with

Clients

Company

* Branderburger & Nalebuff


ecosystems• Remember

– Twentieth century was about competition,

– Twenty-first century is about cooperation


ecosystems• Strategies:• Ecosystem in business is about flow of money• Allow others make money in your website

– Open the doors of your site to clients, suppliers, complementors

• Encourage the selling of complementaring goods• Charge a commision• Evaluate the selling of competitors goods• Democratize innovation• The bigger the ecosystem the more the chances of cross

selling• If you are small join to a bigger ecosystem

Creating value with partners through business ecosystems

Examples

www.ebay.com

www.amazon.com

Creating value with partners through business ecosystems

Examples

SAP ecosystem and partner programs

NTT – Docomo i-Mode ecosystem

Agenda

– Introduction


world


world


communities


ecosystems




Using ICT to build the Infraestructure of

Cooperation


Cooperation

The infrastructure of cooperation:• It is the web site• It is where everything happens• For sharing your free good• For selling your paid good• For the community• For open innovation• For the ecosystem (the others selling their goods)


Cooperation

• Use technologies of cooperation creatively

Cooperation tools for people

Cooperation tools forcompanies


Cooperation

• Be beta


Cooperation

Remember Ian Roughley• Simplicity over Completeness• Long Tail over Mass Audience• Share over Protect• Advertise over Subscribe• Syndication over Stickiness• Early Availability over Correctness• Select by Crowd over Editor• Honest Voice over Corporate Speak• Participation over Publishing• Community over Product


Cooperation

• Strategies– Create incomplete architectures/products/services

• Encoureges user generated content (co-creation)

– Be mashable– Be mobile– Be social– SAS: software as service– SOA: service oriented architecture– Use Ajax– Hire good programmers

Using ICT to build the Infraestructure of Cooperation

Examples

Examples of Infraestructure of Cooperation

Example of application of amazon web services

www.amazon.com www.liveplasma.com


www.myspace.com www.facebook.com


www.secondlife.com

kuler.adobe.com

1 Share something 2 Sell something

3 Build a communityBillionDollar

Business

5 Build an infra. of cooperation

4 Build an ecosystem

6 Use ICT creatively

The Billion Business Model

Question


world?


world?


communities?

– How to creating value with partners?

– How to use creatively the ICT to build the

Infraestructure of Cooperation?



Business




The Billion Business ModelAnswer

Question


world?


world?


communities?





(conclusions)What type of good is

your offfering?Strategy

Private Sell

Collective Sell

Public good Share

Commons Discriminate price(part free/part paid)

Answer

Question


world?


world?


communities?






Business





Question


world?


world?


communities?

– How to creating value with partners ?





Business





Question


world?


world?


communities?

– How to creating value with partners ?



•Use social technologiesAnswer

Common mistakes of web 2.0 entrepreneurs

– Sharing something without selling anything

– Selling something without sharing anything

– Building a community without allowing the selling of

related items

– Building an ecosystem without allowing spontaneous

cooperation

– Not using Information Technology in creative ways

Cooperate without being a saint

Compete w/o killing the competition

(Branderburger & Nalebuff)

Thanks for sharing

– Howard Rheingold and Andrea Saveri

(www.cooperationcommons.com)

– Brandenburger and Nalebuff (mayet.som.yale.edu/coopetition)

– Don Tapscott (www.wikinomics.com)

– Carl Shapiro and Hal Varian (www.inforules.com)

– www.wikimedia.org

– www.webshotspro.com

– finance.yahoo.com

– www.strategy-business.com

– www.compete.com

Still need more help?

Need training?- Wanna the explanation of this course?

Need consulting?- Wanna turn your business into billionaire one

Need implementation?- Have great ideas but lack of technical skills?

Contact me!- Also send opinions and critics

Still need more help?

Marcelo Honores Economist Master in E-Busienss 15 years of experience in IT [email protected] marcelo-honores.blogspot.com www.linkedin.com/in/mhonores Not billionaire yet Looking for partners!!!