Business Model Canvas Patterns

I. Pattern 1
A. Concept of the unbundled corporation holds that there are three
fundamentally different types of businesses:
1. Customer Relationship businesses
2. Product innovation businesses
3. Infrastructure businesses
B. Each type has different economic, competitive and cultural imperatives
C. The three types may co-exist within a single corporation, but ideally
they are unbundled into separate entities in order to avoid conflicts
or undesirable trade offs
D. Examples: mobile telecom industry, private banking industry
E. Unbundled corporation: believes that companies are composed of
three different types of businesses with different economic,
competitive, and cultural imperatives: customer relationship
businesses, product innovation businesses, and infrastructure
businesses. Suggest companies should focus on one of three value
disciplines: operational excellence, product leadership, or customer
intimacy
F. Role of customer relationship businesses: finding and acquiring
customers and building relationships with them.
G. Role of product innovation businesses: develop new and attractive
products and services
H. Role of infrastructure businesses: build and manage platforms for high
volume, repetitive tasks.
I. Companies should separate these businesses and focus on only one of
the three internally. Each type of business is driven by different factors,
so they can conflict with each other or produce undesirable trade-offs
within the same organization
Product
Customer
Infrastructure
Innovation
Relationship
Management
Management
Economics
Early market
High cost of
High fixed costs
entry enables
customer
make large
charging
acquisition makes volumes essential
premium prices
it imperative to
to achieve low
and acquiring
gain large wallet
unit costs;
large market
share; economies economies of
share; speed is
of scope are key
scale are key
key
Competition
Battle for talent;
Battle for scope;
Battle for scale;
low barriers to
rapid
rapid
entry; many
consolidation; a
consolidation; a
small players
few big players
few big players
thrive
dominate
dominate
Culture
Employee
Highly service
Cost focused;

centered;
coddling the
creative stars

oriented;
customer comes
first mentality

stresses
standardization,
predictability,
and efficiency

J. Private Banking three businesses in one

1. Trade offs
a. Serves two different markets with very different dynamics.
Advising the wealthy is a long-term, relationship-based business.
Selling financial products to private banks is a dynamic, fastchanging business
b. Aims to sell its products to competition banks in order to increase
revenues but this create a conflict of interest
c. Product division pressures advisors to sell the banks own
products to clients. This conflicts with the client interest in
neutral advice. Clients want to invest in the best products on the
market, regardless of origin.
d. The cost and efficiency focused transaction platform business
conflicts with the remuneration intensive advisory and financial
products business, which needs to attract costly talent
e. Transaction platform business requires scale to drive down costs,
which is difficult to achieve within a single bank
f. Product innovation business is driven by speed and quick market
entry, which is at odds with the long-term business of advising
the wealthy
2. Unbundling the mobile Telco
a. Mobile telecommunication firms started unbundling. Tradition
competed on network quality, now they are striking network
sharing deals with competitors or outsourcing network
operations altogether to equipmant manufacturers
i. Realize their key asset is no longer the network its their
brand and their customer relationships
b. Business Model Canvas
i. Everything in the model is tailored to understanding and
serving customers or building strong customer relationships
ii. Product and service innovation, infrastructure acquired from
third parties
iii. Key assets and resources are the customer base and
subscriber trust acquired over time
iv. Customer acquisition and retention comprise main costs
which include branding and marketing expenses
v. Model aims at generating revenues with broad scope of
products build on customer trust the goal is to win a large
share of the wallet
vi. Activity is focused on leveraging research and development
to bring new products and services to market

vii.Products and services can be brought to market directly, but

are usually delivered through B2B intermediaries focused on
customer relationships
viii. The activities and offer are focused on delivering
infrastructure services
ix. Services are usually delivered to business customers
x. Revenues are based on the margins and high volume
xi. Platform is characterized by high fixed costs which are
leveraged through scale and large volume
xii.High premium chargeable because of novelty factor
xiii. High cost due to the battle over creative talent the key
resource in some markets
II. Pattern 2:
A. Long tail business models are about selling less of more: focus on
offering a large number of niche products, each of which sells relatively
infrequently
B. Aggregate sales of niche items can be as lucrative as the traditional
model whereby a small number of bestsellers account for most
revenues
C. Long Tail business models require low inventory costs and strong
platforms to make niche content readily available to interested buyers
D. Shift in media business from selling a small number of hit items in
large volumes toward selling a very large number of niche items, each
in relatively small quantities. Many infrequent sales can produce
aggregate revenues equivalent to or even exceeding revenues
produced by focusing on hit products
1. Democratization of tools in production: falling technology costs give
indivdual access to tools that were prohibitevly expensive just a few
years ago. Millions of passionate amateurs can now record music,
produce short films, and design simple software with professional
results
2. Democratization of distribution: internet ahs made digital content
distribution a commodity, and dramatically lowered inventory,
communications and transaction costs, opening up new markets for
niche products
3. Falling search costs to connect supply with demand: the real
challenge of selling niche content is finding interested potential
buyers. Powerful search and recommendation engines, user ratings,
and communities of interest have made this much easier
E. Netflix moved toward licensing a large number of niche movies. While
each niche movie is rented relatively infrequently, aggregate revenue
from Netflixs vast niche film catalog rivals that from the rental of block
buster movies.
F. Lego
G. Business Model Canvas

1. Niche content providers (professional and/or user generated) are

the key partners in this pattern
2. The key resource is the platform, key activities include platform
development and maintenance and niche content acquisition and
production
3. The costs incurred cover platform development and maintenance
4. The Value proposition of long tail business model is characterized
by offering a wide scope of non-hit items that may co-exist with
hit products. Long tail business models may also facilitate and
build on user-generated content
5. Long tail business models focus on niche customers
6. Long tail business model can serve both professional and amateur
content producers and may create a multi-sided platform catering
to users and producers alike
7. This model is based on aggregating small revenues from a large
number of items, revenue streams vary, they may come from
advertising, product sales, or subscription
8. Long tail business models usually rely on the internet as a
customer relationship and/or transaction channel
III. Pattern 3
A. Multi-sided platforms bring together two or more distinct but
interdependent groups of customers
B. Such platforms are of value to one group of customers only if the other
groups of customers are also present
C. The platform creates value by facilitating interactions between the
different groups
D. A multi-sided platform grows in value to the extent that it attracts
more users, a phenomenon known as the network effect
1. The key resource required for this business model pattern is the
platform. The three key activities are usually platform management,
service provisioning, and platform promotion
2. The value proposition usually creates value in the three main
areas
a. Attracting user group (customer segments)
b. Matchmaking between customer segments
c. Reducing costs by channeling transactions through the platform
3. The main costs incurred under this pattern relate to maintaining
and developing the platform
4. Business models with a multi-sided platform pattern have a distinct
structure. They have two or more customer segments each of
which ahs its own value proposition and associated revenue stream.
Moreover, one customer segment cannot exist without the others
5. Each customer segment produces a different revenue stream. One
or more segments may enjoy free offers or reduced prices
subsidized by revenues form other customer segments. Choosing

which segment to subsidize can be a crucial pricing decision that

determines the success of a multi-sided platform business model
IV. Pattern 4
A. In the free business model at least one substantial customer segment
is able to continuously benefit from a free-of-charge offer
B. Different patterns make the free offer possible
C. Non-paying customers are financed by another part of the business
model or by another Customer segment
D. Free advertising: pattern of multi-sided platforms
1. With the right product or service and high traffic the platform
becomes interesting to advertisers which in turn allows charging
fees to subsidize free products and services
2. Main costs relate to developing and maintaining the platform;
traffic-generation and retention costs may also arise
3. Free products or services generate high platform traffic and increase
attractiveness to advertisers
E. Freemium Pattern
1. The platform is the most important asset in the freemium pattern
because it allows free basic services to be offered at low marginal
cost
2. The cost structure of this pattern is tripartite: usually with
substantial fixed costs, very low marginal costs for services to free
accounts, and (separate) costs for premium accounts
3. Customer relationships must be automated and low cost in order
to handle large number of free users
4. Important Metric to follow is the rate at which free accounts
convert to premium accounts
5. The Freemium model is characterized by a large base of free service
users subsidized by a small base of paying users
a. Users enjoy a free basic service and can pay for a premium
service that offers additional benefits
6. Percent of premium and free users: specifies how many of all
users are premium paying users or free users
7. Cost of service indicates the average cost the company incurs to
deliver a free or premium service to a free or premium user
8. Growth and churn rate specifies how many users
defect/respectively join the user base
9. Customer acquisition costs total expenses a company incurs to
acquire new users
10. Price of premium service indicates the average cost the
company incurs to deliver a premium service to a premium paying
user
F. Bait and Hook
1. Focuses on delivery of follow-up products or services
2. Bait and hook patterns usually require a strong brand

3. Important cost structure elements include subsidization of the

initial product and the costs of producing follow-up products or
services
4. Cheap or free bait lures customers and is closely linked to a
(disposable) follow up item or service
5. This pattern is characterized by a tight link or lock in between the
initial product and the follow up products or services
6. Customers are attracted by the instant gratification of a cheap or
free initial product or service
7. The initial one-time purchase generate little or no revenue but is
made up for through repeat follow-up purchases of high margin
products of services
V. Pattern 5:
A. Open business models can be used by companies to create and
capture value by systematically collaborating with outside partners
B. This may happen from the outside-in by exploiting external ideas
within the firm, or from the inside-out by providing external parties
with ideas or assets lying idle within the firm
C. Principles of innovation
Closed
Open
The smart people in our field work for We need to work with smart people
us
both inside and outside our company
To profit from research and
External R&D can create significant
development, we must discover it,
value, internal R&D is needed to
develop it, and ship it ourselves
claim some portion of that value
If we conduct most of the best
We dont have to originate the
research in the industry, we will win
research to benefit from it
If we create the most or the best
If we make the best use of internal
ideas in the industry, we will win
and external ideas, we will win
We should control our innovation
We should profit from others use of
process, so that competitors dont
our innovations, and we should buy
profit from our ideas
others intellectual property
whenever it advances our own
interests
D. Outside-In Pattern
1. External organizations sometimes from completely different
industries, may be able to offer valuable insights, knowledge,
patents or ready-made products to internal R&D groups
2. Building on external knowledge requires dedicated activities that
connect external entities with internal business processes and R&D
groups
3. Taking advantage of outside innovation requires specific resources
to build gateways to external networks
4. It costs money to acquire innovation from outside sources. By
building on externally-created knowledge and advanced research

programs, a company can shorten time-to-market and increase its

internal R&D productivity
5. Established companies with strong brands, strong distribution
channels, and strong customer relationships are well suited to an
outside-in open business model. They can leverage existing
customer relationships by building on outside sources of innovation
E. Inside-out pattern
1. Some R&D outputs that are unusable internally for strategic or
operational reasons may be of high value to organizations in
other industries
2. By enabling others to exploit unused internal ideas a company adds
easy additional revenue streams
3. Organizations with substantial internal R&D operations typically
possess much unutilized knowledge, technology, and intellectual
property. Due to sharp focus on core businesses, some of these
otherwise valuable intellectual assets sit idle. Such businesses are
good candidates for an inside-out open business model
Unbundling
The long
Multi-sided Free as a
Open
business
tail
platforms
business
business
models
model
models
Context An
The value
One value
A high
R&D
(before) integrated
proposition proposition value,
resources
model
targets only targets
high cost
and key
combines
the most
one
value
activities are
infrastructur profitable
customer
propositio concentrated
e
clients
segment
n is
in-house
managemen
offered to -ideas are
t, product
paying
invented
innovation,
customers inside only
and
only
-Results are
customer
exploited
relationships
inside only
under one
roof
Challen Costs are
Targeting
Enterprise The high
R&D is costly
ge
too high.
less
fails to
price
and/or
Several
profitable
acquire
dissuades productivity
conflicting
segments
potential
customers is falling
organization with
new
cultures are specific
customers
combined in value
who are
a single
proposition interested
entity,
s is too
in gaining
resulting in
costsly
access to a
undesirable
companys
trade offs
existing

Solutio
n
(after)

Business is
unbundled
into three
separate but
complement
ary models
dealing with
Infrastructur
e
managemen
t
-Product
innovation
-Customer
relationships

The new or
additional
value
proposition
targets a
large
number of
historically
less
profitable
niche
customer
segments
which in
aggregate
are
profitable

Rationa
le

IT and
managemen
t tool
improvemen
ts allow
separating
and
coordinating
different
business
models at
lower cost,
thus
eliminating
undesirable
trade-offs

IT and
operations
manageme
nt
improveme
nts allow
delivering
tailored
value
proposition
s to a very
large
number of
new
customers
at low cost

Exampl

Private

Publishing

customer
base (e.g.
game
developers
who want
to reach
console
users)
A value
proposition
giving
access to
a
companys
existing
customer
segment is
added (eg.
A game
console
manufactu
rer
provides
software
developers
with
access to
its users)
An
intermedia
ry
operating
a platform
between
two or
more
customer
segments
adds
revenue
streams to
the initial
model
Google

Several
value
propositio
ns are
offered to
different
customer
segments
with
different
revenue
streams,
one of
them
being
free-ofcharge (or
very low
cost)

Internal R&D
resources
and activities
are
leveraged by
utilizing
outside
partners.
Internal R&D
results are
transformed
into a value
proposition
and offered
to interested
customer
segments

Nonpaying
customer
segments
are
subsidize
d by
paying
customers
in order to
attract
the
maximum
number of
users

Acquiring
R&D from
external
sources can
be less
expensive,
resulting in
fast time-to
market.
Unexploited
innovations
have the
potential to
bring in more
revenue
when sold
outside
Proctor &

Advertisin

es

banking
Mobile telco

industry
(lulu.com)
LEGO

Video
game
consoles
from
Nintendo,
Sony,
Microsoft
Apple
iPod,
iTunes,
iPhone

g and
newspape
rs
Metro
Flickr
Open
Source
Red Hat
Skype
(versus
Telco)
Gillette
Razor and
blades

Gamble
GlaxoSmithKl
ine
Innocentive