Sunday, May 10, 2009

Visualizing value propositions and revenue models

On the website Boardofinnovation 10 generic building blocks are presented to "build any business model". Each building block is presented graphically and the idea is to visualize different business models to enable mapping and comparison of different businesses and "a new way of designing and innovating business models." I find visualizing business models very powerful, see for example the business model canvas, and the way of drawing blocks and arrows is of course a commonly used method to describe business models.

The visualized building blocks are:
Company - the company whose business model is described
Product - from commodities to finished goods
Services - services around a product or stand alone
Experience - not only offering a product or service but an experience
Reputation - a brand experience shaping client identity
Client- receives the product and gives something in return
Money - the normal value of a good
Less Money - less money than the normal value of a good
Attention - a currency of paying attention to advertising
Exposure - a currency of spreading the word

Building blocks to describe value propositions and revenue models
The term business model can be understood in a broad or narrow sense and can be expressed, visualized and explained in many different ways. Common elements in a business model, not described by the 10 building blocks presented above are what internal and external assets and capabilities that are used, what activities that are performed, how the value propositions are delivered, what forms of relationships the company has with its clients and external partners, control mechanisms used and the business model cost structure.

According to me what the 10 building blocks describe is not the business model but the different involved actors, value propositions and different types of revenues and benefits. It gives a first understanding of what a business model is about but it doesn't explain how value is created or delivered and only using the 10 building blocks will make fundamentally different business models look similar if they share some similar principles.

The main contributions with the 10 building blocks are according to me the blocks "experience" and "reputation" broadening the concept of value propositions from products and services, and "exposure" and "attention" broadening the concept of revenue model.

Broadening the concept of value propositions
A value proposition is often defined as "what the customer gets for what the customer pays" or "a bundle of products and services that are of value to the customer". I argue in my post about value propositions that a value proposition is how value is bundled and offered to potential value recipients where the term "value" is not limited to products and services and the term "value recipient" is not limited to customers.

Providing something new, something unique, something more convenient or accessible, customized, with higher performance or to a lower price are all common value propositions towards traditional customers. But value can also be to enable risk- or cost reduction for a supplier, provide access to databases or research tools for early-stage university research, provide user data to "upstream" application developers, out-license manufacturing or quality assurance processes to other companies, cross-license technology & IP, bring passengers to remote airports, provide jobs and environmental responsibility for a region, pay tax to a government, or take active involvement in a community.

The building blocks "experience" and "reputation" adds, according to me, important dimensions to the common perception of the value proposition. "Belonging" is another interesting dimension when the value proposition includes being part of a community, that shares common interests or values. I find conceptualization of products and services and the use of brands highly interesting and I plan to write separate posts exploring the subject in relation to business models.

Broadening the concept of revenue model
As with the term value proposition, the common perception of the term revenue model when used in relation to business models, is according to me rather narrow. I often talk about the "revenue and benefit model" and the main thing I want to understand is "What do I get in return for providing value to each value recipient?" The term revenue model implies revenues, money, but as the website Boardofinnovation shows in its building blocks, benefits can also be other things such as attention or exposure.

I would argue that what a business can get in return for providing value to a value recipient can be much more than attention and exposure, with examples such as cross-licensing of technology and IP to get access to new assets and capabilities, user data to improve services or improve the value for advertisers, adoption of a technology platform or service to create momentum and obtain network externalities, co-development efforts to lower cost and reduce risks etc.

To read more about the 10 building blocks and see some examples please visit Boardofinnovation

Further reading:
What is a business model?
What is a value proposition?
The Business Model Canvas

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