Business Models 2.0 - Freemium & Platform based business models

VALUE CREATION IN COMPANIES 2.0

> FREEMIUM, > PLATFORM BASED BM > TWO SIDED PBBM > MULTISIDED PBBMMICHAL GROMEK

RESEARCHER ON FINTECH & CROWDFUNDING

#SE.LINKEDIN.COM/IN/MGROMEK

STOCKHOLM

SCHOOL OF ECONOMICS

1320 ENTREPRENEURSHIP AND OPPORTUNITY

STOCKHOLM, MARCH 3RD 2017

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"100 YEARS AGO THE LIFE EXPECTANCY OF FIRMS WAS 90 YEARS. TODAY IT IS DOWN TO 10-15 YEARS "

SOURCE : HTTPS : / /WWW .YOUTUBE .COM/WATCH?V=DBRXOXJUV_C , SSE , MASTER IN BUSINESS AND MANAGEMENT , ACCESSED 15TH OF FEBRUARY 2017

STOCKHOLM

SCHOOL OF ECONOMICS

"HALF OF THE FORTUNE 500 COMPANIES HAVE DISAPPEREAD SINCE 2000"PIERRE NANTERME , CEO ACCENTURE , 2016 , BASED ON HTTP : / /WWW .SLIDESHARE .NET/ETEIGLAND/NEW- INDUSTRIAL- REVOLUTION-AND-DIGITAL-BUSINESS-MODELS?QID=61CF5C5C-CE83-4E1E-BEBF-4571B011D7C4&V=&B=&FROM_SEARCH=2

SOURCE : HTTP : / /WWW .VISUALCAPITALIST .COM/CHART-LARGEST-COMPANIES-MARKET-CAP-15-YEARS/ HTTP : / /WWW .SLIDESHARE .NET/ETEIGLAND/NEW- INDUSTRIAL-REVOLUTION-AND-DIGITAL-BUSINESS-MODELS? QID=61CF5C5C-CE83-4E1E-BEBF-4571B011D7C4&V=&B=&FROM_SEARCH=2 (ACCESSED FEBRUARY 2017)

IN ORDER TO GROW, WALMART HAD TO BUILD MORE STORES - AND FACEBOOK?

MARKET CAP VALUATIONS —INTERNET VS. PLATFORM COMPANIES

STOCKHOLM

SCHOOL OF ECONOMICS

SOURCE: HTTPS://WWW.ACCENTURE.COM/FR-FR/_ACNMEDIA/PDF-2/ACCENTURE-PLATFORM- ECONOMY-TECHNOLOGY-VISION-2016-FRANCE.PDF (ACCESSED 3RD OF MARCH)

1995

2015

Alibaba Alphabet Amazon.com Apple Baidu eBay Facebook JD.com LinkedIn Netflix Priceline.com Salesforce Tencent Twitter Yahoo!

Tech Companies and Born-Digital Organizations

Apple Axel Springer Copart Fox Communications IAC/InterActive Corp iLive iStart Internet Live Microsystems Netcom Online Netscape PSINet RentPath Storage Computer Corp. Wave Corporation Web.com

Internet Companies

$2,560,902 $MM

$16,752 $MM

+15,187.1%

GROW OF

PLATFORM

COMPANIES

1995-2015

ADAPTED FROM PARKER & VAN ALSTYNE , WITH CHOUDARY , 2016 , AND UPDATED JANUARY 2017 HTTP : / /WWW .SLIDESHARE .NET/ETEIGLAND/NEW- INDUSTRIAL-REVOLUTION-AND-DIGITAL-BUSINESS-MODELS? QID=61CF5C5C-CE83-4E1E-BEBF-4571B011D7C4&V=&B=&FROM_SEARCH=2 (ACCESSED FEBRUARY 2017)

VALUATION OF THE COMPANIES FROM THE (UPCOMING) "FOURTH INDUSTRIAL REVOLUTION"

ADAPTED FROM PARKER & VAN ALSTYNE , WITH CHOUDARY , 2016 , AND UPDATED JANUARY 2017 HTTP : / /WWW .SLIDESHARE .NET/ETEIGLAND/NEW- INDUSTRIAL-REVOLUTION-AND-DIGITAL-BUSINESS-MODELS? QID=61CF5C5C-CE83-4E1E-BEBF-4571B011D7C4&V=&B=&FROM_SEARCH=2 (ACCESSED FEBRUARY 2017)

POWER OF MULTISIDED PLATFORM

WORLD LARGEST ACCOMENDATION

PROVIDER OWNS NO PROPERTY

WORLD LARGEST TAXI COMPANY

OWNS NOT A SINGLE CAR

WORLD LARGEST RETAILER DOESN'T

OWN A WEARHOUSE

WORLD LARGEST MEDIA COMPANY

DOESN'T CREATE CONTENT

CLICK HERE FOR MORE INFORMATION ABOUT

PIPES VS PLATFORM BUSINESS MODEL

TRADITIONAL PIPE BUSINESS MODEL

EXAMPLE: CAR

CONSUM

PTION

DISTRIBUTION

LOGISTICS

PROCESSIO

N

PRODUCTIO

N

INPUT

ADAPTED FROM PARKER & VAN ALSTYNE 2016 FROM HTTP : / /WWW .SLIDESHARE .NET/ETEIGLAND/NEW- INDUSTRIAL-REVOLUTION-AND-DIGITAL-BUSINESS-MODELS? QID=61CF5C5C-CE83-4E1E-BEBF-4571B011D7C4&V=&B=&FROM_SEARCH=2 (ACCESSED FEBRUARY 2017)

SELLER OF PRODUCTS AND / OR SERVICES

SMACIT TO MAKE LINEAR PROCESS EFFICIENT

SUPPLY-SIDE ECONOMIES OF SCALE

MANAGER OF THE FIRM WITH DISTINCT BOUNDARIES

FIRST MOVER ADVANTAGE

OWNERSHIP OF RESOURCES

https://www.wired.com/insights/2013/10/why-business-models-fail-pipes-vs-platforms/

STOCKHOLM

SCHOOL OF ECONOMICS

SMACITS = Social M = Mobile A = Analytics C = Cloud IT = IoT

TRADITIONAL PIPE BUSINESS MODEL

MULTI & TWO SIDED PLATFORM MODEL


STOCKHOLM

SCHOOL OF ECONOMICS

UNICORNS TEND TO BE PLATFORMS (115 UNICORNS)

SOURCE : P . EVANS , CGE ; CB INSIGHTS , CAPITAL IQ , CRUNCHBASE , 2015

NON PLATFORN 30%

PLATFORM 70%

STOCKHOLM

SCHOOL OF ECONOMICS

PLATFORMS BY TYPE



TWO SIDED & MULTISIDED PLATFORM BUSINESS MODEL

CUSTOM

ERS PRO

DUCERS


DESTINATION FOR SOLVING CUSTOMER NEEDS

SMACIT TO CO-CREATE VALUE

DEMAND-SIDE ECONOMIES OF SCALE (NETWORK EFFECTS)

LEADER OF AN ECOSYSTEM WITH FUZZY BOUNDARIES

FIRST TO SCALE ADVANTAGE

ACCESS TO RESOURCES

PLATFORM


PLATFORM BASED BUSINESS MODEL

STOCKHOLM

SCHOOL OF ECONOMICS

EXAMPLE.

PHILIPS HEALTH SUITE, PARTNERED UP SALESFORCE,

AMAZON AWS, IOT, AND ALI CLOUD.

ALLOWS PERFORMING PATIENT MANAGEMENT, DATA

COLLECTION, AND MANAGEMENT OF HOME DEVICES.

SOURCE : HTTP : / /WWW .USA .PHILIPS .COM/HEALTHCARE/ INNOVATION/ABOUT-HEALTH-SUITE (ACCESSED MARCH 3RD 2017)

PLATFORM BASED BUSINESS MODEL

STOCKHOLM

SCHOOL OF ECONOMICS

EXAMPLE PRODUCT

PLEASE START WATCHING AT 2:02 MIN

SOURCE : HTTPS : / /WWW .YOUTUBE .COM/WATCH?V=8QPUUC6GH4G (ACCESSED 3RD .03 .2017)

https://www.youtube.com/watch?v=8QpUUC6gh4g

STOCKHOLM

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TWO SIDED PLATFORM

SOURCE :2016 PARKER & VAN ALSTYNE , WITH CHOUDARY – LICENSED UNDER CREATIVE COMMONS ATTRIBUTION-SHAREALIKE 4 .0 INTERNATIONAL (CC BY-SA 4 .0) .

Phone Callers

Uber Drivers

eBay Sellers

Xbox Developers

Amex Merchants

Aga Khan Doctors

YouTube Videographers

AirBnb Rooms

Tesla Charge Stations

Mechanical Turk Laborers

LinkedIn Employers

Upwork Projects

Android Developers

Phone Callees

Uber Riders

eBay Buyers

Xbox Gamers

Amex CardHolders

Aga Khan Patients

YouTube Viewers

AirBnb Renters

Tesla Car Drivers

Mechanical Turk Jobs

LinkedIn Employees

Upwork Freelancers

Android Users

HTTP : / /WWW .SLIDESHARE .NET/MARKETREVOLUTION/SHSU-SHARING-ECONOMY-COLLABORATIVE-CONSUMPTION FROM HTTP : / /WWW .SLIDESHARE .NET/ETEIGLAND/NEW- INDUSTRIAL-REVOLUTION-AND-DIGITAL-BUSINESS-MODELS? QID=61CF5C5C-CE83-4E1E-BEBF-4571B011D7C4&V=&B=&FROM_SEARCH=2 (ACCESSED FEBRUARY 2017)

POWER OF MULTISIDED PLATFORM

STOCKHOLM

SCHOOL OF ECONOMICS

USERS ARE CREATING VALUE FOR OTHER USERS.

SOURCE: CAÑIGUERAL “PLATFORMS ARE EATING THE WORLD” SLIDESHARE.NET



PLATFORM LEVERAGE NETWORK EFFECTS >>>

HTTP : / /WWW .SLIDESHARE .NET/ETEIGLAND/NEW- INDUSTRIAL-REVOLUTION-AND-DIGITAL-BUSINESS-MODELS? QID=61CF5C5C-CE83-4E1E-BEBF-4571B011D7C4&V=&B=&FROM_SEARCH=2 (ACCESSED FEBRUARY 2017)

METCALFE’S LAW:

MORE USERS = MORE VALUE = MORE USERS…

2 PHONES

12 CONNECTIONS

5 PHONES 12 PHONES

60 CONNECTIONS


STOCKHOLM

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TAKE ONE MINUTE AND LIST FIVE POINTS WHY WHAT MIGHT NOT WORK WITHIN THE PLATFORM BUSINESS MODEL?

STOCKHOLM

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PLATFORM BASED MODEL

ENOUGH RESOURCES ON THE SUPPLY SIDE. (UBER PL DEMAND 3X HIGHER THAN SUPPLY) CUSTOMER SERVICE THAT FITS THE CULTURE OF CUSTOMERS (DIDI VS. UBER) LIMITATION OF BAD QUALITY PROVIDERS ON THE PLATFORM (UBER'S 4.5 RATING)CHICKEN EGG PROBLEM WINNER TAKES ALL MARKET

STOCKHOLM

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SOURCE : PROF KARIM LAKHANI , OPEN INNOVATION HOW CAN I USE THE CROWD , ESBRI 26 .02 .106

FREEMIUM BUSINESS MODEL

EXAMPLE:

CHARACTERISTCS:

YOUR COST OF ADDING ONE ADDITIONAL USER IS MARGINAL OR ZERO. (ECONOMY OF SCALE) YOU HAVE OR WILL SIGNIFICANT TRACTIONS OF USERS.FREEMIUM IS NOT ONLY FOR IT SERVICES, BUT MUSIC (SPOTIFY), ANALYTICS (STATISTA), PRESENTATIONS, VIDEOS, ....

ONLY 8% OF THE USERS BUY PREMIUM SERVICES

FREEMIUM EXAMPLE:

STOCKHOLM

SCHOOL OF ECONOMICS

TOONIA COLOURBOOK

1 million downloads

doubling of pricepaid

no traction

SINCE 2013: 2 MILLION DOWNLOADS (40K IN FEBRUARY 2017) PRICE 9,99 EURO BETTER RETENTIONS BIG AMOUNT OF PROFIT ON THE "PACKS"

SOURCE : PARTLY FROM , HTTPS : / /WWW .SLIDESHARE .NET/JESSICATAMS1/RUNNING-A- FREEMIUM-BUSINESS-MODEL- IN-THE-KIDS-CATEGORY-GORAN- IVASIC? QID=16B1E5D5-50D7-41AC-99DD-ED4CD69FEBAE&V=&B=&FROM_SEARCH=4 (ACCESSED MARCH 2ND)

launch of free app

http://https//WWW.SLIDESHARE.NET/JESSICATAMS1/RUNNING-A-FREEMIUM-BUSINESS-MODEL-IN-THE-KIDS-CATEGORY-GORAN-IVASIC?QID=16B1E5D5-50D7-41AC-99DD-ED4CD69FEBAE&V=&B=&FROM_SEARCH=4

FREEMIUM EXAMPLE:

STOCKHOLM

SCHOOL OF ECONOMICS

TOONIA COLOURBOOK

THE DEVELOPERS DECIDED TO CREATE AN ENTIRE PACKAGE OF SUBSIDIARY BRANDS

SOURCE : HTTPS : / /SENSORTOWER .COM/ ACCESSED MARCH 2017

https://sensortower.com/

STOCKHOLM

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SOURCE : HTTP : / /WWW .BUSINESSINSIDER .COM/PROBLEMS-WITH-FREEMIUM-MODEL-2013-5?R=US& IR=T& IR=T (ACCESSED 2ND OF MARCH 2017)

FREEMIUM

“IT CAN WORK WONDERFULLY OF COURSE, BUT USUALLY IT CRUSHES AND DESTROYS COMPANIES, NOT ONLY BECAUSE IT …. “

STOCKHOLM

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SOURCE : HTTP : / /WWW .BOTHSIDESOFTHETABLE .COM/2012/05/23/ ITS-MORNING- IN-VENTURE-CAPITAL/ (ACCESSED 1ST OF FEBRUARY)

ADVANTAGES OF FREEMIUMCONVERSATION. CUSTOMER SERVICE. MARKETING EXPENSES:

EASY TO UPSET STATS FROM INVESTORS LOWER AND LOWER COSTS TO START BIG USERBASE FOR USER ANALYTICS. NOT USING THE COMPETITION.

STOCKHOLM

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TAKE ONE MINUTE AND LIST FIVE POINTS WHY WHAT MIGHT NOT WORK WITHIN THE FREEMIUM BUSINESS MODEL?

STOCKHOLM

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DISCUSS YOUR ARGUMENT WITHIN YOUR GROUP - IF FREEMIUM IS A SUITABLE BUSINESS MODEL FOR YOUR STARTUP. (MIN. ONE PRO AND ONE CONT ARGUMENT?) YOU WILL BE ASKED TO PRESENT. 3 MINUTES.

STOCKHOLM

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SOURCE : 4% + HTTPS : / /WWW .FORBES .COM/SITES/BENKEPES/2014/02/24/CONFIRMATION-OF-DROPBOXS-MONSTER- RAISE/#43B12BD17678 (ACCESSED 2ND OF MARCH 2017) , 1% + HTTPS : / /WWW .FORBES .COM/SITES/VICTORIABARRET/2012/11/13/DROPBOX-HITS-100-MILLION-USERS-SAYS-DREW- HOUSTON/&REFURL=&REFERRER= (ACCESSED WND OF MARCH 2017)

CHALLENGES OF FREEMIUMCONVERSATION. CUSTOMER SERVICE. MARKETING EXPENSES:

USERS DON’T CONVERT TO PAID USERS. DROPBOX HAS A RATE OF 1 PAYING USERS PER 25 FREE USERS. (OR 1% AS THE NUMBERS ARE DISPUTED)

FREEMIUM USERS OUTNUMBER THE AMOUNT OF PAID USERS 100-TO-1 IN SUPPORT FORUMS AND MIGHT DROWN YOUR CUSTOMER AND TECH SERVICE. COMPANIES STATE: “CUSTOMER SERVICE IS NOT INCLUDED IN THE FREE TIER, BUT CAN YOU REALLY IGNORE YOUR CUSTOMERS?”.

AS ONLINE MARKETING IS BEING BASED ON CTR AND AFFILIATE MARKETING RELIES ON USER CONVERSATION IT THE ONLINE MARKETING COSTS HAS TO INCREASE BY 96 TIMES TO RECEIVE FOUR PAYING CUSTOMERS. (DROPBOX EXAMPLE). VIRAL PRODUCT OR YOU CAN’T AFFORD TO ADVERTISE.

STOCKHOLM

SCHOOL OF ECONOMICS

1. MAKE SURE TO BE VERY CLEAR ABOUT WHAT

IS AND IS NOT INCLUDED IN FREEMIUM.

2. CALCULATE THAT ONLY ONE OUT OF 100

USERS MIGHT PAY FOR YOUR SERVICE.

3. CREATE LEAN CUSTOMER SUPPORT TOOLS,

SEE AIRBNB OR FACEBOOK AS INSPIRATIONS.

4. THINK ABOUT DIFFERENT PREMIUM

PACKAGES CONNECTED TO SPECIFIC NEEDS.

(TONNIA DRAW BOOK EXAMPLES)

5. MAKE SURE, THAT USERS UNDERSTAND THAT

THEY USE A SERVICE THAT HAS BEEN CREATED

BY SOMEBODY AND IS NOT MECHANICAL.

6. PLAN YOU MARKETING COSTS CLEARLY AND

LOOK FOR UNIQUE PR STRATEGIES TO RECEIVE

ATTENTION.

7. PAY CLOSE ATTENTION TO ONLINE

MARKETING COSTS, (ADVERBS, SEO, AFFILIATE)

AND BUILD IN BUDGET BORDERS. THE

EXPENSES MIGHT RUIN THE BUDGET.

RECOMMENDATION FREEMIUM

STOCKHOLM

SCHOOL OF ECONOMICS

SLACK, A REAL-TIME MESSAGING, ARCHIVING

AND SEARCH FOR THE WORK PLACE, IS

OFFERING ITS USERS $100 TO ANSWER 6

QUESTIONS. I’LL SAY IT AGAIN, A NEW

COMPANY THAT HAS MADE IT TO A 1.1 BILLION

DOLLAR VALUATION WITH ITS FREE PRODUCT

BEING IN THE MARKET LESS THAN A YEAR, IS

PAYING USERS FOR INFORMATION.

LIFEHACK FREEMIUM

SOURCE : HTTP : / /WWW .GEEKTIME .COM/2014/11/25/WHY-A-FREEMIUM-PREMIUM- BUSINESS-MODEL-DOESNT-WORK (ACCESSED 1ST MARCH 2017 (

DO SOMETHING UNUSUAL TO GET TRACTION

WHAT IS CHEAPER THAN TO USE TRADITIONAL

ONLINE MARKETING TOOLS.