E-business Model Design, Classification and Measurements

E-Business Model Design,Classification, and MeasurementsMaqali Dubosson-Torbay Alexander Osterwalder Yves Pigneur

Executive Summary"Busitiess model" is one of the latest bttzzwords in the Internet and electronic businessworld. This article has the ambition to five this term a more ri^jorotis content. Theobjective is threefold. The first objective is to propose a theoretical e-business modelframework for doittg business in the Internet era. The second is to propose a multidi-mensional classification-scheme for e-Business Models, as opposed to the actual ten-dency in academic literature to use two-dimensional classifications. The final objec-tive is to define critical success factors, based on afield study in order to find out andcompare the performance indicators used by e-business firms that are competing withsimilar business models. 2002 John Wiley & Sons, Inc.

INTRODUCTION

-here have been several attempts to classify all the business models consistentlyemerging with the coming of the New Economy in order to understand how e-companies are making or not making money. Some companies have seen theirbusiness model highly publicized such as tlie reverse auction model of Pricelineor online grocery model of Peapod. But is it all so clear? For instance, ebay.commight be typical of an Agora B-Web (Tapscott et al., 2000), but at the sametime, ebay.com might be considered as being a merchandiser online (transac-tion.net) or an auction broker (Rappa, 2001). All of them are considering thesame object, but from different perspectives. Is there a better or a worse way toclassify the business models? Are they allowing comparisons? Do they help tounderstand the strategies of the different actors within a same category, forinstance, the online grocery stores? Are they explaining why some of them ben-efit from better fmancial figures?

Nowadays, new business models finished emerging in electronic commerce andcan become a major stake in the e-business game (Kalakota, 1999; Maitre &Magali Dubosson-Torbay is a researcher in operation management at the University of Lausanne,Switzerland. Alexander Osterwalder is a Ph.D. student in information systems. Yves Pigneur is aProfessor of Information Systems at the University of Lausanne.

Tliundcrbird Iiitcrnarional Uusincss Review, Vol. 44(1) 5-23 January-February 2002 2002 Jolin Wiley & Sons, Ine. c

Magali Dubosson-Torbay Alexander Osterwalder Yves Pigneur

Aladjidi, 1999). It is even possible to patent them in some countries(Pavento, 1999). Understanding the new business models and help-ing to design and measure them are important research issues, not sowell covered until now.

The next section presents a definition and tiie components of a busi-ness model as a new fi^amework. The section following suggests usingthis fi'amework to classify and compare business models. Finally, weshow through examples how to translate the core processes of thebusiness models into a set of relevant measures for each componentof the adopted framework.

E-BUSINESS MODEL DESIGN

Several authors show that with the success of Information andCommunication Technologies (ICT)-particularly the Internet-orga-nizational transformations are taking place in industries and compa-nies (Martinez, 2000; Tapscott et al., 2000; Timmers, 2000). Thee-Business Model approach we propose in this article should help afirm structure its organization in a way that it becomes more efficient,more flexible, and responsive to customer demand, to forecast possi-ble fiature scenarios and therefore, to stay competitive in the Internetera. E-business modeling has similar goals to enterprise modeling ingeneral. Modeling helps firms develop business visions and strategies,identify and assess business opportunities, redesign and align businessoperations, share knowledge about tiie business and its vision andensure the acceptance of business decisions through committingstakeholders to the decisions made (Persson & Stirna, 2001).

Figure ]L. E-Business Model Decomposition

(2) CustomerRelationship

value for

Get a FeelServing

Branding

(1) ProductInnovation

resourcesfor

Target CustomerValue Proposition

Capabilities |

(3) InfrastructureManagement

1 Resources/Assets

1 Activities/Process1 Partner Network |

(4) Financial Aspects

Revenue Profit 1 Cost

Thiindcrbird International Business Review January-February 2002

E-Business Model Design, Classification, and Measurements

A business model is nothing else than the architecture of a firm andits network of partners for creating, marketing and delivering valueand relationship capital to one or several segments of customers inorder to generate profitable and sustainable revenue streams.

Our e-Business Model framework is therefore divided into four prin-cipal components. (1) The products and services a firm offers, repre-sents a substantial value to a target customer (value proposition) andfor which he is willing to pay. (2) The relationship capital the firmcreates and maintains with the customer, in order to satisfy him andto generate sustainable revenues. (3) The infrastructure and the net-work of partners that are necessary in order to create value and tomaintain a good customer relationship. And (4) the financial aspectsthat can be found throughout the three former components, such ascost and revenue structures.

Product InnovationThe product component of the e-Business Model framework describesthe value a firm wants to offer its customers. Significant studies of tlietargeted customer segments have to be undertaken in order to find outdie relevance and die components of an effecdve value recognidon bythe customer. To deliver this value proposition, the firm has to possessa certain set of in-house and/or outsourced capabilities.

Value PropositionThis element refers to the value the firm offers to a specific target cus-tomer segment. ICT have had their most important impact on newways of creadng and deUvering value, for example, through substandalcost savings thanks to dis-intermediation (Benjamin & Wigand, 1995).Dell for example, has revoludonized the computer industry by direcdyselling to its customers over the Internet. Customization is anothercommon value proposidon enabled by the rapid development of ICT.Through mass customizadon (Piller et al., 2000) and through rule-based one-to-one personalizadon or collaboradve filtering, firms canpropose value tailored to the profile of every single customer. Whereasdie shoe company Customatix.com lets its customers design their ownfootwear, Amazon.com proposes books according to their customerstaste. The nodon of infomediation describes the re-intermediadon-pro-cess in the Internet era. ICT has enabled the creadon of a wide rangeof new and innovadve mediadon services (Sarkar et al., 1995).

TargetA firm generally creates value for a specific customer segment. Thedefinidon of the market scope (Hamel, 2000; Afliah & Tucci, 2001)Thunderbird International Business Review January-February 2002


ICTofferawhole newrange of oppor-tunities toexploit existingcustomer rela-tionships by get-ting a feel forthe customer'sdesires...

8

captures the essence of where the firm does and does not compete-which customers, which geographical areas, and what product seg-ments it markets. A firm can market either to businesses and/or indi-viduals, commonly referred to as business-to-business (B2B) andbusiness-to-consumer (B2C). With the expansion of reach by the useof ICT, differentiated strategies for different geographical regionsbecome an important issue even for small firms.

CapabilitiesTo deliver the value proposition to different customers, a firm mustensure that it possesses the range of capabilities that underpin theproposed value. For example, if Intel wants to offer to its customersfast microprocessors, the company has to have access to high-qualityresearch and development (R&D), product design, and manufactur-ing capabilities. Whether Intel wants to perform these tasks in-houseand/or in collaboration with other firms is a strategic decision, whichis further detailed in the infrastructure component of the e-BusinessModel framework.

Customer RelationshipThe importance of customer relationship potential is often forgotten inother business model approaches that are mainly focused on products,value creation processes and exchange patterns between differentactors. However ICT offers a whole new range of opportunities toexploit existing customer relationships hyettini a feel for the customers'desires, serving them and developing an enduring relationship withthem.The notion of branding has also evolved from product and com-pany marketing to include relationship capital (Tapscott et al., 2000)which emphasizes the interaction between the firm and the customer.

Getting a Feel for the CustomerThis element refers to all customer information and knowledge a com-pany can gather and exploit, in order to discover new and profitablebusiness opportunities and customer segments and to improve theirrelationships with their customers. These insights can be used through-out marketing and sales, and especially for customer relationship man-agement (CRM). Hamel (2000) calls this the positive feedback effect.A firm with a large base of users, and a way of rapidly extracting feed-back and information from those users, may be able to improve itsproducts and services faster than its competitors. In this virtuous circle,products and product innovation can be improved, which, in return,attracts new customers. In addition to product improvement, a betterknowledge of its customers allows a firm to establish a personalizedrelationship tailored to the needs of every single customer.

Thunderbird International Business Review January-February 2002


Serving the CustomerServing the customer includes fulfillment, support, and CRM. Afirm must ask itself how it wants to deliver additional value to its cus-tomers and what support and service level it wants to provide.Fulfillment and support refer to the way the firm "goes to market"and how it actually "reaches" customers (Hamel, 2000). A firmmust define its channel strategy and understand that the Internet hasa great potential to complement rather than cannibalize its business(Porter, 2001). At the front-end, the Internet plays an importantrole in customer support and customer relationship management. Itcan make many of these processes more efficient by supplying thecustomer with a wide range of basic information on products, prices,and availabiUty and by offering customized real-time information(i.e., delivery status, product lifecycle management). The expressdelivery company Federal Express (FedEx), for example, lets its cus-tomers track their shipments onhne. This substantially increases theservice value for the customer and is an important relief for FedEx'scustomer call center.

BrandingThis element of the e-Business Model framework has not lost itsimportance in the era of the Internet, but it has profoundly changedits definition. Tapscott et al (2000), for example, think that adver-tising, promotion, publicity, public relations and several otheraspects of corporate communications are becoming archaic con-cepts. Branding shifts towards relationship dynamics (Hamel, 2000)where emotional, as well as transactional, elements in the interactionbetween firm and client form the image of a company. It's the firm'sability to engage customers, suppliers, and other partners in mutu-ally beneficial value exchanges that determines its relationship capi-tal (Tapscott et al., 2000) and brand. The Online auction companyeBay.com for example, owes its brand name and customer loyalty toits ability to assure smooth and beneficial transactions between pri-vate auctioneers and to its trust mechanisms that establish confi-dence between all involved parties.

Infrastructure ManagementIn the product component of the e-Business Model framework, wehave described the capabilities that are needed in order to create anddeliver the value proposition. The infrastructure componentdescribes the value system configuration (Gordijn et al., 2000) that isnecessary to deliver the value proposition; in other words, the rela-tionship between in-house and/or partners' resources., assets, andactivities and a network.



. . . shrinkingtransaction costsmake it easierfor firms to verti-cally disintegrateand to reorga-nize into partnernetworks.

10

Resources/AssetsIn order to create value, a firm needs resources (Wernefelt, 1984).Grant (1995) distinguishes tangible, intangible, and human assets.Tangible resources include plants, equipment, and cash reserves.Intangible resources include patents, copyrights, reputation, brands,and trade secrets. Human resources are the people a firm needs inorder to create value with tangible and intangible resources. In thenetworked economy, firms increasingly concentrate on their corecompetencies and separate themselves from all resources and assetsthat do not belong to their core business.

Activity and ProcessesThe main purpose of a company is the creation of value that customersare willing to pay for. This value is the result of a configuration of insideand outside activities and processes. To define the value creation pro-cess in a business model, we use the extension of the value chain frame-work (Porter & MiUer, 1985) as defined by Stabell & Ffeldstad (1998).They extend the value chain with the value shop and the value network.Former describes the value creation process of service providers (suchas hospitals or consulting firms), whereas tiie latter describes brokeringand intermediary activities (such as banks or phone companies).

Partner NetworkThis element of the e-Business Model framework is closely tied to thevalue proposition and the value creation process. The partner networkdetails how the value creation process is distributed among the partnersof the firm. In the product component it was all about what value todeliver. In this element it is about how to create value with a network ofpartners. Management literature defines strategic networks as "stableinter-organizational ties which are strategically important to participat-ing firms. They may take the form of strategic alliances, joint-ventures,long-term buyer-supplier partnerships, and other ties" (Gulati et al.,2000). As has been explained above, a shtinking transaction costs makeit easier for firms to vertically disintegrate and to reorganize into partnernetworks. Firms can focus on their core competencies and activities inthe value creation process and rely on partner networks for other non-core competencies and activities. In e-business Uterature there are sever-al terms atising for tiiese new forms of strategic networks in the valuecreation process, such as b-webs (Tapscott et al., 2000) and value net-works (Nalebuff & Brandenburger, 1996).

Financial AspectsOf course, the financial perspective also belongs in our e-BusinessModel framework. But rather than qualifying financial aspects such



as the revenue or pricing model of a firm as the unique and mostimportant element of a business model, we consider them as thefourth component and as the consequence of the formerlydescribed. Financial aspects can be understood as costs required toget the infrastructure to create value and as revenues of sold value.The difference between revenues and costs determines the prof-itability of a company.

RevenueThis element measures the ability of the firm to translate the value itoffers to its customers into money and therefore generate incomingrevenue streams. A firms revenue model can be based on subscrip-tion costs and fees from the customer, advertising and sponsoringrevenues from other firms, commissions and transaction cuts fromprovided services, revenue sharing with other firms, and by simplyselling a product. Firms selling over the Internet should consider anappropriate pricing strategy and pricing mechanism in order to max-imize revenues. First they have to be aligned with the nature of theproduct. For example, an airplane engine price is set differently thanthe price of an electronic camera. Second, they have to aim at achiev-ing the highest price the customer is willing to pay for the offeredvalue. It is important to mention that ICT have had an importantimpact on pricing and have created a whole new range of pricingmechanisms (Klein & Loebbecke, 2000).

CostThis element measures all the costs the firm incurs in order to create,market and deliver value to its customers. It sets a price tag on all theresources, assets, activities, partner network relationships, andexchanges that cost the company money. As the firm focuses on itscore competencies and activities and relies on partner networks forother non-core competencies and activities there is an importantpotential for cost savings in the value creation process. The right useof ICT in customer relationship also opens up new opportunities fordelivering premium customer services and therefore additional valueat reasonable costs.

ProfitThis element measures the ability of a firm to create positive cash fiow.

ComparisonFew authors have attempted to give the term electronic businessmodel a more precise and global content. Even though the litera-ture on e-Business Models is growing, most of it only partially dis-

7 7TluiJiderbird International Business Review January-February 2002


cusses the subjects of interest. Afuah & Tucci (2001) for example,seem to neglect the customer component of a business model.Gordijn et al. (2000) demonstrate the value creation process in anetwork of partners, but do not describe any of the other neces-sary components for a complete model from a business point ofview. Hamel (2000) however, has quite a complete approach tobusiness models.

In Table 1 we compare the existing e-Business model literature andtheir components to the e-Business model framework presented inthis article.

Table 1. E-Business ModelBusiness Models

a

ctio

ion

) Pro

duIn

nova

t

0 g(A 0

3 1

nan

cia

12

Target Customer

Value Propostion

Capabilities

Get a FeelServing

Branding

Resources/Assets

Activities/Process

Partner Network

Revenue

Cost

Profit

LiteratureComparison with Literature Review

Aflih& Tucci (2001)Scope

Customer value(differentiation,low cost)

Capabilities,implementationConnected activities

Pricing strategy(selling), revenuesources

Sustainability

Thunderbirc

Hamel (2000)Scope

Business missiondifferentiation

Information and insightFulfillment and support.customer benefitsRelationship dynamics

Core competencies.strategic assetsCore processes.configurationValue network.Company boundariesnetwork

Pricing structure

Profit boosters

International Business Review

Gordijn (2000)Actors,market segmentValue offering

Value activity

Stakeholdervalue interfaces,value ports

Value exchanges

Value exchanges

anuary-February 2002


IllustrationAs an illustration of the formerly discussed e-Business model frame-work, we decided to focus on and to compare two Internet-auctioncompanies, Ricardo and eBay. First, Ricardo, the German auctionenterprise, can be described by the following characteristics:

Customer: Ricardo says that it has a total commitment to cus-tomer satisfaction and quality. It has earned an award for beingnotably customer-friendly. It has expanded its offerings bylaunching RicardoBIZ, a B2B e-commerce portal with the tra-ditional auction format, the reverse auction format and barter-ing and mixed auctions.Product: Ricardo created customer awareness by original auc-tions such as the Steffi Graf's French Open racket in aid of the"Children for Tomorrow" trust, diving cruises by submersibleto see the Titanic, or Ricardo shares donated to UNICEF.Witliin its partnership with SAT 1 TV, it combines classical showelements with die online auctions and it has announced tlielaunch of QXL.tv, a new service to deliver auction programmingvia television and Internet. Ricardo also launched a worldwideexclusivity: the live auctions where up to 8,000 users can partic-ipate simultaneously. From February 2000, all auctions up to dievalue of DM 250 will be insured and there will be a trustee ser-vice for aucdons valued over this limit. Ricardo wants to offerthe highest level of security and the largest range of products.Infrastructure: Ricardo has concluded a strategic cooperationagreement with Impress Software in the area of B2B onlineauction in order to integrate exisdng ERP customer systems.This will be the standard software soludon SAP R / 3 .

This brief descripdon of unbundling Ricardo into its three compo-nent businesses can then be compared to a similar descripdon for itsAmerican counterpart, eBay:

Customer: eBay focuses on convenience by means such asonline tutorials, a four-step process or the possibility of cus-tomization of the service. Regular sellers can establish a repu-tadon for reliable delivery and quality through a rating andcomment system based on the experience of customers. This isconsidered by eBay as way to create "stickiness." eBay's mar-keting and customer acquisition costs are lower than most sitesbecause of the powerful word-of-mouth effect.Product: As Ricardo, eBay also tries to attract the attentionfrom the media by auctioning for instance, a team of pro-

13Tluinderbird International Business Review January-February 2002

Magali Dubosson-Torbay Alexander Osterwalder Yves Piflneur

grammers, a kidney, or the camera of the director of the BlairWitch Project. It has launched eBay Business Exchange servic-ing the small business market (B2B). It has also launched eBayAnywhere, that aims to make eBay accessible from anyInternet-enabled mobile device.Infrastructure: eBay acquired Billpoint, an online paymenttechnology firm in 1999. On March 1st, 2000, it announced astrategic alliance with Wells Fargo, designed to address theexploding need for an online person-to-person payments plat-form. Together, they have launched a new payment option, the"Electronic Check," that combines the convenience and safetyof paper checks with the speed of the electronic payments. eBayhas selected Sun Microsystems as its premier supplier of servers,software and professional services. For its shipping service, eBayhas concluded a strategic deal with Mail Boxes Etc. and its net-work of more than 3,000 centers across the country, and withiShip.com and its online shipping, pricing and tracking solu-tions. It has also concluded a strategic parmership with e-stamp.com to promote e-stamp as an exclusive provider of U.S.Postal Service Internet postage.

Considering the two cases, none focuses on infrastructure but relymore on partners for their infrastructure, especially eBay with alarge network including diverse industries. Ricardo seems to bemore innovative in terms of product offerings with its live auctionsand with its willingness to combine other technologies such as TVand mobile devices with the Internet. Both want to attract new cus-tomers with original auctions.

E-commerce corresponds to the use of inter-networked computersto create and transform business relationships, in particular, thetransactions and interaction between the company and its con-sumers. As stated by Hagel & Singer (1999), today, due to elec-tronic networks, we are on the verge of a broad, systemic reductionin interaction costs throughout the world economy. For them, it isunlikely that one company will be able to do all three businessesand still continue to increase its profits over the long haul.According to them, "because electronic commerce has such lowtransaction costs, it is natural for Web-based business to concen-trate in a single core activity." From the Ricardo and eBay compar-ison, it is not so obvious to tell which core activity they arefocusing. At least, we could find out on which core business theyare not focusing (i.e., infrastructure, because of their vast array ofoutsourced activities).

14Thunderbird International Business Review January-February 2002


CLASSIFYING E-BUSINESS MODELS

Our second preoccupation is to categorize business models and topropose a limited number of generic business models. Several classi-fications have been proposed in the literature.

Most authors suggest two dimensions in order to rate the businessmodels: fi.inctional integration and degree of innovation (Timmers,1998), economic control (both hierarchical and self-organizing) andvalue integration (Tapscott et al., 1999), type of relationships anddegree of externality (Amami & Thevenot, 2000), power of sellersand buyers. Based on their classification, they propose to keep a lim-ited number of basic types of business models: from 5 for Tapscott(1999) to about 30 for Rappa (2001). This diversit)' shows the inad-equacy of a unique classification scheme.

Therefore, unlike the hierarchical "decomposition and specialization"structure adopted by the Process Handbook (Malone et al., 1999), wepropose first to use a multicategory approach and to accept that abusiness model could be positioned with regard to several dimensions,in a web of many classification schemes. The business models ofPriceLine could be considered for example as an "Agora" in theTapscott's classification (1999), high (self-organizing) on the controlaxe, low on the value integration; as an "e-auction" in the Timmers'classification (1998), medium on the functional integration and medi-um (to high) on the degree of innovation.By our literature review, we identified as principal dimensions for clas-sifying the business models:

The user role: How is the client or the prospect considered bythe company.^ As a client or as a provider of a product/servicethat other clients may want to buy from, or as a participant towhom nothing is sold, but information or services are offeredagainst information about the participant.''

Interaction pattern: Is the service provided by one or manypeople/companies to one or many people/companies.' ForTimmers (1998), "many" must be understood as many actorsfrom which information is being combined.

Nature of the offerings: Is the company offering information,services or products to its visitors.^ In some cases, the companyis giving away its content for free against information gather-ing and/or is getting money from ads. Another option couldbe that the company does not want to sell on the Web but justwants to use its site as a promotion tool.

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Maflali Dubosson-Torbay Alexander Osterwalder Yves Pigneur

Pricing system: Is the user paying according to its usage rate, toa fixed subscription to get access to the service, to a fee system(percentage or fixed amount), to a price list or to a dynamicprice mechanism (i.e., auction and reverse auction)? One lastoption is that the user does not pay for the service (Baatz).

The level of customization: This level is ranging from masscontent to customized content.

The economic control: It goes from self-organizing (no singlecompany drives the content of its transactions or the econom-ic outcomes) to hierarchical (some Webs have a boss who con-trols the content, the pricing, and flow of transactions)(Tapscott et al., 1999).

Table 2. E-Business Model

Business Models

8 s

rodu

clo

vatic

Target Customer

Value PropostionCapabilities

ton:

nsh

2) Cu

sRe

latio

stru

ctur

eem

ent

(3) In

fraM

anag

n _

(4) Fi

nan(

Asp

ects

Get a FeelServing

Branding

Resources/Assets

Activities/ProcessPartner Network

RevenueCostProfit

Classification

Comparison with Literature ReviewFrom LiteratureReviewUser RoleNature of the offeringsValue/cost offeringsDegree of innovationScale of trafficRequired security

Level of CustomizationPower to buyer/sellerInteraction pattern

Economic controlValue integration

Pricing system

Timmers (1998) Tapscott (1999)

Degree of innovation

Interaction pattern

Economic controlFunctional integration Value integration

16 Thtindcrbird International Business Review January-February 2002

E-Business Model Oesign, Classification, and Measurements

The level of required security to monitor and verify purchasesin your system.

The level of value integradon: Some Webs facilitate the creadonand the delivery of specific product/service offerings that coher-endy integrate components from muldple sources. In contrast,other webs provide low value integradon and do not change thenature of the products actually offered (Tapscott et al., 1999).

The value/cost offerings: Is the product offerings more posi-doned as an added value product/service or as a low-cost low-price proposal?

The scale of traffic: Does it require significant site traffic or isit viable with a moderate traffic site.^

The degree of innovation: It varies from essendally an elec-tronic version of a traditional way of doing business to moreinnovative ways, for instance, by offering funcdons that didnot exist before (Timmers, 1998).

The extend to which power is more on die buyer or the seller side.

Readopdng the framework presented in the first part, we classifiedthese different dimensions usually used for classifying business mod-els as well as the Timmers' and Tapscott's dimensions.

EoUowing this framework and some of its classiiicadon dimensions, wecan tell, for instance, that eBay, as an auction service, sets the price witha dynamic process depending on the number and the interest of thepotendal buyers. Then, small business took the opportunity providedby eBay to offer their goods on die Internet. At last, eBay decided toexpand its service to meet the needs of the small business market, tar-gedng businesses with less than 100 employees (B2B). In the eBaybusiness model, the user can be the provider as well as the client. As asecondary source of revenues, eBay offers the possibility to buy somespace for posdng adverdsements or to host die links to other sites. Itprovides value through an integrated full-service shipping service andtechnology for person-to-person payments through the Internet.Moreover, the level of customization of eBay is quite high with featuressuch as my eBay.

MEASURING OORE PROCESSES

Designing and managing a business model requires a measurementsystem that identifies the key factors and indicators (Rockart, 1979)by which the success of the company and its business model can beassessed. To appraise a business model and elicit the requirements of

17Thunderbird International Business Review January-February 2002


its measurement system, it is appropriate to determine these factorsaccording to the four components of the adopted framework:Product, Customer, Infrastructure, and Finance.

This proposed framework had to be confronted with empirical datafrom e-business companies. We decided to focus on two industries:the online groceries and the auction companies. Four companiesfrom both sectors were chosen, two from Europe and two from theU.S. The online grocery stores included Le Shop (Switzerland),Ooshop (France), Peapod and Streamline; the auction firms com-prehended were Ricardo (Germany), iBazar (France), Priceline, andeBay. For all except Ooshop, we used the information disclosedpurposely by them (i.e., information you can find on their Websiteor information disclosed for financial purposes such as SEC files).

We suggested characterizing each business model with a set of mea-sures using a balanced scorecard approach. Kaplan & Norton (1992)introduced the idea that a measurement system has to reflect a bal-anced view of the organization's objectives in four areas which pre-cisely correspond with the four components of our framework. Thesefour areas are unified in an integrated and global strategy that can beexpressed by a cause-effect relationship.

These areas are:

Product measures that assess the originality of the value propo-sition and identify what the organization has to build for learn-ing, long-term growth, and innovation (creativity, employeecapabilities, motivation, turnover, stock options). According toHagel (1999), in e-business, measuring human talent andspeed on the market seems to be crucial.

Customer measures that evaluate the relationships of the orga-nization with its customers (retention, acquisition, satisfaction,and profitability) and the appreciation of the value propositionby the customers (functionality, quality, price, timeliness,brand image, availability, and shopping experience). Accordingto Hagel (1999), in e-business, measuring economy of scopeand customer satisfaction is essential.

Infrastructure measures that identify the internal and out-sourced activities of the value chain and processes with thegreatest impact on customer satisfaction and financial objec-tives (design, build, delivery, and service). Still, according toHagel (1999), in e-business, measuring economies of scale andefficiency are key for this aspect of the framework.



Table 3. Measures for E-Business CompaniesAuction Online retailers(Case Studies) (Case Studies)

Council forCIOs (1999)

TargetCustomer

# of customers# of registered users% of Internet users# of countries/areasMarket shareRanking on markets# visitors per day

#of cities servedMarket share# of customer orders# of consumer goodsclients# of customerscategories of products

Penetration rateNumber of uniquevisitors per month

ValueProposition

# of languagesAverage value of goods# of currenciesNew products/serv.# products on sale# of merchants

% of fresh products# of products offered

Average days ofexclusivity for productintroduction or majorfeatureAverage time betweensite relaunches

I Capabilities I48 hour delay betweenpick up/deliveryDelivery timing

% of on-line ordersshipped within 24hours

# of individuals that getconnected at least oncea monthConnection timeCustomer loyaltySpending per daySpending per day# of new customersPurchase intent

# of not satisfiedcustomersBuying frequencyConversion rate torepeat customersAverage order sizeAverage order size% of repeat customers# of clicks

Get a Feel

% of on-line salesabandoned beforecompletion% of 1st time visitorswho return to sitewithin 1 yearAverage time betweenvisits% of customers whohave personalized theirinterfacesSales conversion rate% of customers forwhich company cantrack profitabilityacross business units% of customers withcurrent email addreses

Customer supportpersonnel

One-hour problemresolution% late deliveries

if51

Serving

% of returningcustomers who arerecognized and sentpersonal contentAverage time torespond to customerrequestTime to match competition's websitefeature roll-out# of customer-request-ed features added perupgrade

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Maflali Dubosson-Torbay Alexander Osterwalder Yves Pigneur

Table 3. Measixres for E-Business Companies icontinued)

Auction(Case Studies)

Online retailers(Case Studies)

Working Council forCIOs (1999)

BrandingAwareness levelSales and marketingexpensesAttreaction of media# of referrals# of people told byone customer

Marketingexpenditures%of click throughReliable delivery

% or orders correctlyfulfilled% of orders delivered tocorrect address

Resource/:Assests

isII

Activities/Process

PartnerNetwork

# of trucks# of fulfillment centers

% of documents used byknowledge workersavailable on-line% of employees accessingIntranet at least daily

Answer timeSystem capacity# of transactions per day# of users in liveauctions (capacity)

Out-of-stock positions# of orders processed# of transactions per daydayLogistics capacity

Order confirmation cycletime% of products that arebuilt-to-orderCash conversion ratioInventory turns/yearInventory levelsBid-to-cash cycle timeAbility to handleadditional trafficNetwork uptimeAverage time to load apage

4 day delivery (partner)# of partners

Revenues fromaffiliates programLogistics capacity(outsourced)

Revenue

I ^ Cost

Revenue breakdown byproduct# of page impressionAdvertising revenuesRevenue growthValue of goods traded

Advertising, researchand marketingrevenues

Subscription feesRevenue growth# of products sold

Administration costs Operating expensesInvestmentsCost structure

Net assets needed tosupport $1 worth ofoutput

Net profit/lossGross profit margin

Operating profit/lossNet profit/loss

Free cash flowWorking capitalReturn on investedcapital

financing Market capitalizationShare price

Share priceNet proceeds of IPO

20 Thunderbird International Business Review JanuaryFebruary 2002


Finance measures that serve as the focus for the objectivesand the measures of all the other perspectives and concernrevenue growth, cost management, asset utilization andmarket capitahzation).

Following the BSC approach, the Working Council for ChiefInformation Officers published a report showing the different met-rics for e-business performance evaluation used by companies such as3M, Dell Computer Corp., Federal Express and L.L. Bean (1999).From the analysis of the same group of eight companies belonging tothe online grocery and auction industries, we identified a set of mea-sures related to the different components of our framework and theirrelated issues.

The measures identified in the Working Council of CIOs report andthe measures found in our case studies could be summarized againwith the adopted framework.

CONCLUSION AND FURTHER RESEARCH

The deliverable of this research should be a refined e-BusinessModel framework, integrating a measurement system, the annota-tion of the selected business models with their critical success fac-tors and key measures. Our study consists of a first version of thekey success factors and balanced scorecard measures of severalcase studies.

Further research in progress, based on this article, is a field studyfor observing, analyzing, and cataloging typical business models ina knowledge base. The final objective would be to computerize thisbase and to specify a decision support system for helping businessmodel creators design, critique, and simulate new business models.Since the future in this area is so uncertain (Courtney et al., 1997),a scenario-based forecasting approach could be helpful beforedefining a strategy of adoption, deployment, and management of abusiness model.

Simulation based on the e-Business model framework could helpanswer to the following questions, proposed by Warren (1999):Why has the historical performance of my business followed thetime-path that it has.> Where will the path of future performancetake us if we carry on as we are.' How can we alter that future forthe better?

Thimdcrbird International Business Review January-February 2002

Maaali Dubosson-Torbay Alexander Osterwalder Yves Pigneur

The outcomes of this article should help the managers design a newbusiness model by using the suggested framework and by which, ask-ing the right questions, such as what is exactly my value proposition!"How do I get a good feeling of the needs of my target market.'' Todeliver the intended added-value to the market, what would be therequired and most appropriate resources and assets.'

By taking the various identified dimensions to classify and define newdimensions for the ones that are missing for some components of theframework, the managers should be able to differentiate its businessmodel from the competition and take advantage of their core com-petencies. This approach presents the great advantage of using a mul-tidimensional framework.

Finally, identifying a set of measures for each of the four componentsshould help the e-Business company manage and control its activitiesand outcomes. It should also contribute to monitor the performanceof the competition and find new ways for keeping ahead. In this arti-cle, we described some measures that could be applied to differentcompanies and activities, and help define new ones tailored to theparticular conditions of each company. #

AUTHOR'S NOTE

The information related to Ooshop were collected by StephatiieDufour, ESSEC student, Paris, 2000. Ooshop belongs to theCarrefour group. In 2000-2001, Streamline has shut down its oper-ations. Ricardo has merged with QXL (UK) and iBazar has beenacquired by eBay.

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E-business Model Design, Classification and Measurements