This chapter focuses on the emerging topic of business model innovation. The concept has already been mentioned in the previous chapters, and specifically in Chap. 1, during a preliminary discussion on different types of innovations, and then in Chap. 6, when introducing the concept of "Blue Ocean" strategy. Nevertheless, given its growing relevance in the field of innovation strategy, it is appropriate to dedicate a separate chapter to the topic. The subject will be discussed at first by providing some basic information and definitions, and then by exploring in depth two approaches that can be practically used to analyze and design business models.
What Is a Business ModelThe concept of "business model" is relatively recent, since the term came in use only at the beginning of the twenty first century, when Internet companies started to emerge (Mahadevan 2000). For these firms, it was quite apparent that their activity differed markedly from the "traditional" operational model of buying, transforming and selling goods or services, and on the financial model of profiting from the difference between value of sales and the cost of goods sold. Search engines, auction sites, social networks and music streaming companies provide services toand generate their revenue from-multiple parties in ways that are often quite asymmetrical and difficult to understand.
1When researchers started giving a closer look at the phenomenon, it became apparent that business models and business model innovation mattered for firms operating in other industries as well. First of all, many firms were introducing business model innovations that were bringing disruptive change to their respective 1 For instance, a firm like Google may provide a free Internet search service to users, but make substantial profit by selling highly targeted advertising services to other firms. industries. As a typical example, one can think of low-cost airlines, which represented a significant innovation in transportation, though the major change they introduced was clearly associated to the business model and not to the technical content of flight. Moreover, it became recognized (Chesbrough 2010) that business models represent the "format" with which firms can bring technological innovations to the market, and are therefore key to determining success and failure of the same innovations. As highlighted by Teece (2010), a business model represents a "conceptual, rather than financial, model of a business" and is therefore aimed at representing the constituent elements of a business and their coherence, rather than its profitability.With some adaptation from Shafer et al. (2005), the key elements of a business model are represented in Fig. 7.1. These elements cover the main strategic choices that define a business, the resources which enable the firm to create value, the positioning of the firm in its value network, and a high-level definition of cost and revenue structures. At the same time, the elements in the business model cover both sides of supply (i.e., what i...